* First increase in base rate since Dec. 09
* IMF says it's a "good first step" but more may be needed
(Adds context, details)
By John Ruwitch
HANOI, Nov 5 Vietnam's central bank raised
interest rates on Friday, one day after the government pledged
steps to stabilise the beleaguered dong VND=VN while vowing
not to devalue the currency for at least three months.
Vietnam is also facing growing inflationary pressure.
The State Bank of Vietnam increased its three key rates by
100 basis points each, bringing the benchmark base rate and the
refinance rate to 9 percent and the discount rate to 7 percent,
it said in a statement on its website, www.sbv.gov.vn.
The move was seen as part of measures to help ease some of
the downward pressure on the dong, which has lost value more
rapidly on unofficial markets in the past few weeks, fanning
speculation of a coming devaluation.
While the base rate has no direct effect on bank interest
rates, economists say the central bank can send signals to the
market by moving it up or down.
The International Monetary Fund's senior resident
representative in Vietnam, Benedict Bingham, said the move was
"a good first step" but further adjustments may be needed.
It was the first time the central bank had announced an
increase in the base rate since late November 2009, when it
concurrently devalued the currency in the face of heavy
year-end pressure and rising gold prices. For a timeline see
That move, which took effect on Dec. 1, 2009, raised the
base rate to 8 percent from 7 percent, helping relieve some of
the downward pressure on the dong.
Commercial lending rates used to be capped at 1.5 times the
base rate, but earlier this year the central bank freed up bank
rates, knocking the teeth out of the base rate.
On Thursday, a senior state official said the government
had decided that there would be no devaluation until at least
Tet, the Lunar New Year, which falls in early February 2011.
Le Duc Thuy, chairman of the National Financial Supervisory
Commission, also said the central bank would tap the country's
foreign exchange reserves to stabilise the market and stop
urging banks to lower interest rates, which the authorities had
been doing in recent months to support economic growth.
"This is a good first step, but further adjustments in
policy rates may be needed," the IMF's Bingham said.
"We agree with Le Duc Thuy that the shortage of dollars is
not the issue per se, as the trade deficit, though large, is
more than financed by remittances, FDI, and ODA inflows," he
"Instead, the authorities needed to address concerns that
monetary policy was not dealing decisively enough with high
inflation and the pressure on the dong. They have also needed
to re-assure investors that the government is fully committed
to fiscal consolidation."
Inflation is another problem for the authorities, and Thuy
said the state wanted to avoid devaluing the dong in part to
avoid making inflation worse.
The consumer price index rose 1.05 percent in October from
the month before, after increasing 1.31 percent in September
from August, the government statistics office said.
(Editing by Kazunori Takada)