This is the third time the SBV has decided to reduce the policy interest rate to support the economy since the beginning of 2023.

Accordingly, the overnight lending interest rate in inter-bank electronic payment and lending to offset the capital shortage in the clearing of the State Bank of Vietnam for credit institutions decreased from 6.0% p.a. to 5.5% p.a.; refinancing interest rate reduced from 5.5% p.a. to 5.0% p.a.; the rediscount interest rate remains unchanged at 3.5% p.a.

Along with that, the maximum interest rate applicable to demand deposits and terms of less than 1 month remains at 0.5% p.a.; the maximum interest rate applicable to deposits with a term from 1 month to less than 6 months is reduced from 5.5% p.a. to 5.0% p.a.

Particularly, the maximum interest rate for deposits in VND at People's Credit Funds and Microfinance Institutions will be reduced from 6.0% p.a. to 5.5% p.a.; interest rates for deposits with the term of 6 months or more are set by credit institutions based on supply and demand in market capitals.

Earlier, in March and April, the State Bank of Vietnam twice adjusted down interest rates with a reduction of 0.5-1% p.a. to support the economy.

Along with that, the State Bank has directed credit institutions to maintain a stable and reasonable deposit interest rate level, in line with the ability to balance capital, ability to expand credit and capacity for risk management without affecting the stability of the money market and market interest rates.

State Bank of Vietnam also encourages credit institutions to reduce costs to stabilize lending interest rates to support businesses to recover production and business activities.

According to the State Bank of Vietnam, to date, the interest rate level is kept stable, interest rates for new amounts tend to decrease gradually in the first month of 2023.

The average new deposit interest rate of commercial banks is about 6.3% p.a., decreased by 0.18% p.a. compared to the end of 2022. The average new lending interest rate in VND of commercial banks is about 9.3% p.a., decreased by 0.65% p.a. compared to the end of 2022.

Data from the State Bank of Vietnam shows that Vietnam's economy depends mainly on bank credit (the credit-to-GDP ratio at the end of 2022 is at 125.34%), while the capital demand for economic development is always high, putting pressure on lending interest rates.

At the same time, the pressure to increase interest rates always exists because Vietnam has a large economic openness, fluctuations of the financial market and world currencies have a strong and rapid impact on domestic interest rates and exchange rates.

Kylie Nguyen