State Bank of VietNam

With inflation reaching 17.5 per cent in the year to April, Vietnam’s central bank has again raised interest rates: one lending rate, the reverse repo rate, was raised today by a percentage point to stand at 14 per cent.

Two other rates, the refinancing and discount rates, were both raised by a percentage point on Friday, to stand at 14 and 13 per cent, respectively. Vietnamese authorities have raised several rates multiple times since the start of the year, which have also seen substantial devaluations of the country’s currency, the dong. 

The State Bank of Vietnam has raised two key rates by a full percentage point – a significant increase but still a slower pace than very large rate raises in February and March. The most recent move affects the refinancing and repurchase rates, taking both to 13 per cent.

The move comes less than a month after a five percentage point increase in the discount rate. In February, when the central bank added to inflationary pressure with a 9.3 per cent devaluation of the dong. Since then, the central bank has raised the refinancing rate by 2 percentage points and raised the reverse repo rate by a percentage point. 

In an effort to tame inflation, Vietnam has increased both the refinancing and discount rates to 12 per cent. This is a huge increase of 5 percentage points for the discount rate, which was last raised from 6 to 7 per cent in November of last year. (Note: The chart, right, shows only the refinancing rate, which has been raised by a still-large 1 percentage point.) The statement made no mention of the base rate, which has been used as the benchmark and which appears to remain at 9 per cent.

The move comes hot on the heels of a raft of tightening measures last month, including a 2 percentage point rate rise in the refinancing rate and a 1 percentage point rise in the reverse repo rate

Hot on the heels of a strong devaluation and a raise in the refinancing rate to 11 per cent, Vietnam has increased its reverse repo rate 1 percentage point to 12 per cent. No word yet on the base and discount rates, both last raised in November; they stand at 9 and 7 per cent, respectively.

Raising borrowing rates in Vietnam is an attempt to curb inflation, which will have been encouraged by the devaluation. Prices rose by 12.3 per cent in the year to February, following a 12.2 per cent rise to January, against a target of 7 per cent. Weakening the dong will make imports more expensive, which in the case of goods such as energy will work to push up dong-denominated prices generally.

Following a significant devaluation of the dong, the State Bank of Vietnam has just raised its refinancing rate two percentage points to 11 per cent, effective immediately. The Bank has also raised its overnight to 11 per cent:

- The refinancing interest rate is 11% p.a., and 

The Vietnamese central bank has devalued its currency by about 9.3 per cent, the third devaluation of the dong in a year and the sharpest since at least 1993. Despite high inflation, the State Bank of Vietnam fixed the currency’s reference rate at 20,693 per dollar today versus 18,932 yesterday.

The move is an attempt to address the gap between official and black market exchange rates, which was roughly 8.5 per cent yesterday. A weaker dong will also help exporters and should address the country’s trade deficit.

But the devaluation could be disastrous for inflation, already high at 12.2 per cent last month. The target is 7 per cent. The move suggests the bank is prioritising growth over inflation, which is supported by recent comments from the government. “One of our top priorities now is to stabilize the macro economy in order to maintain the pace of growth,” Bloomberg quotes Nguyen Van Thao, deputy chief administrator of the ruling Vietnamese Communist Party’s Central Committee, saying on January 19.