The bank also reduced banks’ reserve requirements to free up credit.
The State Bank of Vietnam (SBV) raised benchmark rates several times early in the year to fight double-digit inflation but it switched course in late October, launching a series of rate cuts to free up credit.
“The continued reduction of the benchmark rate will create conditions for commercial banks to further cut their lending rates,” said a statement on the official government website.
The move aimed to help enterprises, producers and traders, it said.
Vietnam, a major exporter of manufactured goods such as clothing and footwear and commodities including rice, coffee and seafood, has been hit by downturns in the United States, Europe and other markets.
The communist government is now aiming for economic growth of around 6.5 percent this year and next year, down from 8.5 percent last year.
The recent monetary loosening reverses a series of three rate hikes earlier this year, from 8.25 percent to 14 percent.
Inflation has been in double digits all year but had eased to 24.2 percent year-on-year by November, having topped 28 percent in August.
The statement also said the SBV would cut the refinancing rate to 11 percent from 12 percent and the discount rate by one percentage point to nine percent.
Overnight interest rates for electronic and compensation payments on the inter-bank market were to be reduced to 11 percent from 12 percent.