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Vietnam Monetary Policy October 2020

Vietnam: Central Bank slashes rates for third time this year in October

Effective from 1 October, the State Bank of Vietnam (SBV) reduced a host of interest rates, cutting the refinancing rate from 4.50% to a record low of 4.00%. The move came after sizable monetary easing in March and May, bringing total cuts to the refinancing rate so far this year to 200 basis points.

The decision was aimed at bolstering activity. While the economy gained steam in Q3, and likely markedly outperformed its Asian peers, the recovery is still fragile and vulnerable to possible fresh social distancing restrictions abroad hitting the external sector. Moreover, under-control inflation, currency stability and low interest rates in neighboring economies provided leeway for the SBV to further cut rates.

Looking ahead, with rates at historic lows and the economy in recovery mode, the Central Bank could refrain from further easing in the near term in order to assess the impact of its previous cuts, unless the economic panorama deteriorates markedly. As analysts at UOB comment:

“With the refinancing rate now at a new record low of 4.0% and rediscounting rate at a historical low of 2.5%, the SBV is likely to be biased towards keeping the available interest rate buffer for real emergency situations and stay on a wait-and-see posture, just as the economy reopens further for business activities.”

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