Vietnam Cuts Key Rate to Damp Impact of Global Crisis (Update2)

By Nguyen Dieu Tu Uyen and Van Nguyen

Oct. 20 (Bloomberg) — Vietnam cut the benchmark interest rate to 13 percent to limit the “negative impact” of a possible global recession on the Southeast Asian economy.

The central bank reduced the key rate from 14 percent, effective from tomorrow, according to a statement on the State Bank of Vietnam’s Web site. Vietnam’s benchmark rates are still the highest in Asia, along with Pakistan’s, as the government tries to slow inflation from 27.9 percent.

“If they are doing this now, they must feel very comfortable that inflation is under control,” said Alain Cany, the Ho Chi Minh City-based chairman of the European Chamber of Commerce in Vietnam. “With inflation looking to be more under control, and given the world situation, I don’t think this damages the central bank’s credibility.”

Lower interest rates will make it easier for companies to borrow money, bolstering company profits and helping the government to meet its growth target. India today cut its key rate for the first time since 2004 to protect Asia’s third- largest economy from the global financial crisis.

Vietnamese policy makers also lowered the refinancing rate to 14 percent from 15 percent, and the discount rate to 12 percent from 13 percent, according to the statement. The central bank doubled the interest rate it pays on compulsory reserves for banks to 10 percent.

Global Financial Crisis

“Although the Vietnamese economy isn’t yet showing signs of a recession, we have seen some impact of the deepening global financial crisis,” said Nguyen Thi Kim Thanh, a deputy director of the bank’s monetary-policy department in Hanoi. “It’s now time for the central bank to do something to prevent the economy from slowing further.”

The State Bank of Vietnam will also buy back 20.3 trillion dong ($1.2 billion) of compulsory bills, starting from tomorrow, depending on banks’ individual need for capital. The bank sold the bills in March to reduce liquidity and constrain inflation.

Policy makers have been under pressure from companies to reduce borrowing costs, after three rate increases this year. Prime Minister Nguyen Tan Dung said last week that Vietnam may miss its target of 7 percent economic growth for 2008 as companies are finding it difficult to raise money. Gross domestic product expanded 8.5 percent last year.

Slowing Inflation

Inflation slowed last month from 28.3 percent in August. Along with lower-than-expected credit growth recently, the central bank has some scope to consider lowering rates, Le Xuan Nghia, director of the central bank’s banking development strategy department, said in a telephone interview on Oct. 17.

The central bank may release inflation figures for October as early as this week.

Vietnam today lowered gasoline prices for a third time this month after crude oil declined, reducing pressure on inflation. The government cut the price of 92-RON gasoline, the most commonly used grade, by 3.1 percent to 15,500 dong a liter from 16,000 dong.

The dong had the biggest drop in more than a month on speculation the rate reductions will increase liquidity in the banking system.

The currency declined 0.33 percent to 16,660 versus the dollar as of 4:30 p.m. in Hanoi, according to data compiled by Bloomberg. The dong last fell more on Sept. 19, when it weakened 0.45 percent.

“This is a positive move by the central bank because it will make it easier for companies to get loans,” said Le Dac Son, Hanoi-based chief executive officer of Vietnam Joint-Stock Commercial Bank for Private Enterprises. “It is a signal that the lending rate will be cut further.”

To contact the reporters on this story: Nguyen Dieu Tu Uyen in Hanoi at; Van Nguyen in Singapore at

22 killed in Vietnam floods

HANOI – FLOODS in central Vietnam have killed at least 22 people after a storm lashed the region last week, also leaving 10 fishermen missing in the South China Sea, emergency services officials said on Monday.

Soldiers were deployed to flood areas to search for victims while rescue workers were trying to reach people stranded after 18,000 buildings were damaged or submerged across five central provinces, officials said.

The deaths were reported in the provinces of Nghe An, Thua Thien-Hue, Quang Tri, Quang Nam and Quang Ngai, said Nguyen The Hung of the National Flood and Storm Control Committee in the capital Hanoi.

‘Authorities and local residents have been asked to take preventative measures against further floods and landslides,’ said Nguyen Nghia Hieu, director of Nghe An’s flood control department.

He said rains had abated but water levels in some rivers were still rising.

Vietnam – with a 3,200-kilometre coastline – suffers from frequent floods and storms which claim hundreds of lives every year, mostly in the typhoon season between July and November.

Nine people died when Typhoon Mekkhala hit central Vietnam last month.

Because of its exposure to the South China Sea and its two low-lying and densely populated river deltas, Vietnam is among the countries most at risk from climate change and rising sea levels, the World Bank has warned. — AFP

Fire at Nuplex plant in Vietnam

NZPA | Monday October 20 2008 – 06:54pm

Resin and chemical maker Nuplex Industries Ltd said a fire on Friday at a plant in Vietnam caused about $US2 ($NZ3.31) million of damage.

The company said it is fully insured. The plant in Bien Hoa in Dong Nai province was evacuated and no staff were injured.

The cause of the fire is being investigated and is not being treated as suspicious. It occurred during a transfer of raw materials from bulk storage to a bulk container.

Raw material pumps, a maintenance shed, the masterbatch manufacturing facility and some inventory were damaged.

The plant’s capacity will be constrained by the loss of support equipment for up to three months.

“It is anticipated that masterbatch production will return to full capacity within six months,” the company said.