Vietnam Central Bank to Raise Policy Rates by 100 Bps

Vietnam Central Bank to Raise Policy Rates by 100 Bps
A cyclist rides past the State Bank of Vietnam headquarters in downtown Hanoi on July 6, 2012. (Hoang Dinh Nam/AFP via Getty Images)

HANOI—Vietnam’s central bank announced on Thursday it would raise its policy rates by 100 basis points, in a rare monetary tightening move aimed at keeping inflation under 4 percent this year.

Effective Friday, the refinancing rate will be raised to 5.0 percent and the discount rate to 3.5 percent, the State Bank of Vietnam (SBV) said in a statement on its website.

The move followed this week’s rate hike by the U.S. Federal Reserve and similar steps taken by central banks around the region as prices rise across the world. Vietnam’s prime minister had earlier on Thursday urged the central bank to reconsider policy rates.

Can Van Luc, an economist with the Bank for Investment and Development of Vietnam and an advisor to the government, said the rate hike “is in line with the global trend and is expected to help better control inflation in Vietnam.”

“I don’t think this will affect Vietnam’s official economic growth target of 6.0 percent–6.5 percent for this year,” Luc said. “GDP growth is actually expected to be 7.0 percent–7.5 percent this year.”

Vietnam’s consumer prices in August rose 3.6 percent from end-2021. The government has targeted inflation at below 4 percent this year.

The dong currency fell for nine consecutive sessions to 23,700 per dollar, the lowest since at least 1993, according to Refinitiv Eikon data.

The daily reference rate set by SBV was recorded at 23,316 dong per dollar on Thursday, the weakest since at least 2005, data showed.

SBV Governor Nguyen Thi Hong said earlier on Thursday that Vietnam’s biggest economic challenge at present was to keep inflation under control.

The bank on Thursday also said it would raise caps on interest rates of dong-denominated deposits from Friday, by 0.3–1.0 percentage points, depending on maturities.