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Vietnam cuts interest rate to support virus-hit firms

To reduce the impact caused by COVID-19, Vietnam’s central bank is now offering interest rate cuts for firms.

According to a statement from the State Bank of Vietnam, the regulator will cut its refinance rate from 6% to 5% starting from March 17th. The regulator has also lowered its discount rate and repurchase rate from 4% percent to 3.5%.

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Figure: Vietnam offers tax cut for businesses to reduce impact of COVID-19.

The overnight lending rate in the inter-bank market is reduced to 6% vs 7%, according to the statement.

The regulator also cut its interest-rate cap for dong deposits with maturities of one month to less than 6 months to 4.75% from 5%, while ordering banks to lower the maximum dong lending interest rate for short-term loans to 5.5% from 6%.

Earlier, the regulator ordered commercial banks to eliminate, cut, or delay interest payments on loans to companies struggling with plunging revenue.

Vietnam banks’ moves are aiming to achieve Vietnam’s economic growth target of 6.8% this year. The government has warned that the growth rate might be below six percent if the disruption continues into the second quarter.

Monetary stimulus

Aside from above tax cut, Vietnam is also adding monetary stimulus to support its economy. Vietnam’s central bank also reduced its interest-rate cap for deposits. The regulator adjusted the interest-rate for maturities of one month to less than 6 months from five percent to four point seventy five percent. It has also ordered banks to lower the maximum lending interest rate for short-term loans from six percent to five point five percent.

Nguyen Tri Hieu, a Hanoi-based economist, said, “It will help lower borrowing costs for companies and so can spur lending. However, loan demand in companies is low now, so the government will also need fiscal policies to subsidize businesses to help them overcome this difficult period.”

Vietnamese Prime Minister Nguyen Xuan Phuc is also planning an economic package for the affected firms. The package will include tax cut and interest rate cuts for loans and reductions in insurance fees and land lease costs. But the government hasn’t specified the release date of the package.

Without a doubt, the outbreak of the COVID-19 is a task for all the manufactures. But it might also accelerate the supply chain relocation from China to Vietnam.

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