Central bank cuts key rates Clients at an OceanBank branch in Ha Noi. The central bank cut deposit rate caps by 1 per cent yesterday in a move that followed data on the country's inflation rate falling by 0.19 per cent in March over the previous month. - VNA/VNS Photo HA NOI (VNS)-The State Bank of Viet Nam decided a cut in deposit rate caps by 1 per cent from today. The move, announced yesterday, will see the central bank slash the refinancing rate, a key interbank lending rate, to 8 per cent per year from the current 9 per cent. In addition, the discount rate will be cut to 6 per cent per year from the current 7 per cent and the electronic interbank rate will fall to 9 per cent per year from 10 per cent. The dong deposit interest rate cap from 1-month to 12-month terms was reduced by 0.5 per cent to 7.5 per cent per annum while the rate cap on demand and under 1-month deposits is kept at 2 per cent per year. Interest rates on deposits of over 12-month maturities will be determined by credit institutions based on market demand and supply. As such, short-term lending rates are now capped at 11 per cent per cent for prioritised sectors, including agriculture, exports, supporting industries and small and medium-sized enterprises. The central bank does not regulate lending interest rate caps for other industries. A central bank rate cut had been expected as the country's inflation rate in March decreased 0.19 per cent over the previous month. In addition, the central bank said it made the move in the context of good liquidity in the banking system and a high foreign currency reserve, while credit growth remained weak due to difficulties in business and production, which caused low consumption demand. Before the central bank's rate cut, some large banks such as Agribank, Vietcombank, Sacombank and ACB last week also actively cut their deposit interest rates. Vietcombank is offering 7.5 per cent for 1-3 month deposits, the lowest level offered by banks. The bank's long-term deposits of more than 12 months have a rate of 9.5 per cent. Despite the deposit rate cut, lending interest rates remain high at roughly 15 per cent, too high for many businesses to afford while consumption remains low. Outstanding loans at banks in the first two months declined 0.28 per cent against December last year while deposits surged 3 per cent. This year, the central bank has targeted credit growth of 12 per cent, however, experts said that loans would not increase as much as expected unless lending interest rates were lowered to 10 per cent for short-term loans and 12-13 per cent for medium and long-term loans. Tran Du Lich, a member of the National Advisory Council on Monetary and Financial Policies, said that high interest rates hindered firms from borrowing to invest in expanding their business and production. Last week, SBV governor Nguyen Van Binh also called on banks to cut their lending rates to roughly 13 per cent, saying that banks could not lend and would suffer with other industries if they continuously lend at the high rate of 15 per cent. He said banks should accept a fall in profits to be able to increase their lending and ensure sustainable growth. It was estimated that banks could make a profit if the difference between deposit and lending interest rates was roughly 4 per cent. - VNS