Central Bank: Vietnam to slash key rates Monday

Vietnam's central bank said it will slash key interest rates from Monday, the fourth round of cuts this year following signs of a slowdown in inflation and economic growth. The State Bank of Vietnam said it would lower the refinancing rate -- charged on loans to commercial banks -- to 11 percent from 12 percent. The discount rate will be lowered to nine percent from 10 percent, and the overnight lending interest rate to 12 percent from 13 percent, the bank said in a statement posted on its website Friday. This is the fourth time this year the central bank has cut rates, following similar reductions in March, April and May. "There are positive but also negative signals to be drawn from this," one banking analyst told AFP on condition of anonymity. "It shows that the government's flexible financial policy has worked out well," she said, but warned that cutting rates too quickly in a bid to stimulate growth could create future problems. "Lower lending rates could result in more bad debt in future (and could trigger) a wave of people withdrawing money from bank saving accounts," as interest rates fall, she said. By repeatedly hiking rates last year, Vietnam successfully reined in double-digit inflation, which peaked at 23 percent last August but was down to 8.34 percent year-on-year in May. Standard & Poor's on Wednesday revised Vietnam's outlook to stable from negative, citing the government's successful policy of fiscal tightening. The policy has however slowed down economic growth to 4.0 percent in the first quarter of 2012, the weakest pace in three years. Last year, Vietnam's economy grew 5.9 percent while the government aims for a 6.0 to 6.5 percent expansion this year.