Feb. 18 (Bloomberg) — Vietnam’s central bank raised the refinancing rate to 11 percent, joining Asian counterparts in tightening policy to curb accelerating inflation as it increased borrowing costs for the first time since early November.
The State Bank of Vietnam raised the rate from 9 percent, effective yesterday, it said in a statement on its website. The rate was one of three that were raised on Nov. 5, when the base rate was also increased to 9 percent from 8 percent, and the discount rate was lifted to 7 percent from 6 percent. The bank didn’t mention the other two rates yesterday.
“This is a first step by the central bank to tighten monetary policy in an attempt to curb inflation,” said Luu Hai Yen, a Hanoi-based analyst at Thang Long Securities Joint-Stock Co., the country’s biggest brokerage. Before yesterday, Vietnam hadn’t raised rates this year and the increase in November was the first since 2009.
The Southeast Asian nation’s inflation has accelerated to a 23-month high, and four currency devaluations in 15 months risk spurring price gains further. Vietnam joins policy makers from China to India and Indonesia in raising rates this year as the region’s growth and rising global commodity costs boost inflationary pressures.
Stocks and bonds across Asia have declined this year amid concern that accelerating price gains will erode purchasing power and spur further tightening. The benchmark VN Index of Vietnamese stocks fell 1.2 percent to 503.92 at the 11 a.m. close, the most since Jan. 25, making it Asia’s biggest decliner.
“Investors are very concerned now because the hike in the refinancing rate will lead to a hike in borrowing costs and that will affect the money flow into the stock market,” Giang Trung Kien, head of research at FPT Securities Joint-Stock Co., said by phone today.
Lending rates in Vietnam were as high as 20 percent, according to a statement on the central bank’s website Feb. 2.
HAGL Joint-Stock Co., Vietnam’s second-biggest listed property developer, dropped 2.8 percent to 53,000 dong, the biggest decline since Nov. 17. FPT Corp., the country’s biggest telecommunications and software company by value, plunged 4.9 percent to 58,000 dong, the most since November 2009. The daily limit on the Ho Chi Minh City Stock Exchange, the main bourse, is 5 percent.
The International Monetary Fund has urged Vietnam to “focus more decisively” on containing price gains, and Moody’s Investors Service and Standard & Poor’s cut Vietnam’s sovereign credit ratings in December.
Banks use the refinancing rate in borrowing money from the State Bank, said Lawrence Wolfe, director of business development at DongA Securities Co. in Ho Chi Minh City. The base rate is “purely symbolic” and the fact that the central bank didn’t raise the base rate doesn’t make yesterday’s move any less significant, he said.
“This shows an intention to tighten monetary policy, but they’re going to have to raise rates even more than this,” Wolfe said. “This is a first step. They’re testing the waters, and they want to go step by step.”
Consumer prices climbed 12.17 percent in January from a year earlier. Citigroup Inc. has said the benchmark base rate should be boosted to 11 percent.
The new refinancing rate “will make it more expensive and more difficult for banks to get capital from the central bank for making loans,” said Alan Pham, chief economist at VinaCapital Investment Management Ltd. “The purpose is to keep credit growth within the goal of 25 percent. This is also an attempt to keep inflation under control because less credit, less inflation.”
The State Bank of Vietnam devalued the nation’s currency by about 7 percent on Feb. 11, the most since at least 1993.
With the rate increase yesterday, “real interest rates will become less negative, thus helping to slow the rate of credit expansion, which was 27.7 percent last year,” according to a note from Australia & New Zealand Banking Group Ltd. “The hike is essential, especially after the devaluation of the dong last week that will add to inflation pressures.”
Nguyen Van Giau, the governor, and Nguyen Ngoc Bao, director at the central bank’s monetary policy department, didn’t answer calls to their cell phones by Bloomberg News yesterday.
The overnight rate in inter-bank electronic payments and the rate of loans to finance short balances in clearing transactions between the central bank and commercial banks were set at 11 percent, according to the statement.
The central bank may lower the base rate if the monthly consumer price index increases by about 1.4 percent in February from January, online newswire Vietnamplus reported Jan. 27, citing Giau.
“The chances for interest rates level to go down have become impractical,” said Kien of FPT Securities.