Hanoi - Vietnam's central bank on Thursday cut its benchmark interest rate by 1 percentage point to 11 per cent in its third reduction in a month and reduced the reserves that banks must have on hand by 2 per cent to counteract the ill effects of the global financial crisis. "The rate cut was made to actively prevent the negative effects of the financial crisis and the risks of recession from the world economy," the State Bank of Vietnam said in a statement. "It is also to stabilize the macro-economy and ensure social welfare."
The move reflected concern on the part of the government that economic growth has slowed too fast. It has made a series of rate cuts as it tries to encourage growth but not allow inflation to race out of control.
Earlier this year, the central bank used interest rate increases to put the brakes on an overheated economy. In September, inflation hit 27.9 per cent, one of the highest rates in Asia. Food prices rose more than 60 per cent compared with the previous year, hurting millions of poor.
Economists widely applauded the government's efforts to tighten the credit market, and after the rate hikes, the inflation rate did ease slightly, but high interest rates have caused fears that small businesses would go bankrupt if they could not borrow.
"Vietnamese enterprises were finding it hard to get access to loans from banks, so the interest rate cut from 12 to 11 per cent will help them get easier access to capital," said Vo Tri Thanh, a senior official at the Central Institute for Economic Management. "If the state bank had not reduced interest rates, it would have hurt production and economic growth."
For many years, Vietnam was considered one of Asia's economic tigers with growth rates of 8 to 9 per cent. Last month, the government predicted that the economy would grow 6.7 per cent this year.
