HANOI - The Vietnamese government will gradually lower interest rates to promote growth, especially after it ends stimulus measures that have subsidised borrowing rates, Prime Minister Nguyen Tan Dung said on Thursday.
Such a move may carry risks though. The International Monetary Fund, Asian Development Bank and other agencies have advocated a tighter monetary policy to stave off possible inflation and support the beleaguered dong, which has been under steady pressure to depreciate against the dollar.
Dung also said the government would oversee foreign exchange rates more flexibly, although he did not give details.
"We will actively and step-by-step lower interest rate levels in order to serve economic growth, especially after the state lowers and finishes economic stimulus measures," Dung said in a speech to the National Assembly, or parliament.
Vietnam's benchmark base rate has been at 7 percent since February, half of what it was at its peak last year after the government slammed the brakes on an overheating economy.
One of Vietnam's key economic stimulus measures has been a loan interest subsidy scheme under which the government has been paying 4 percentage points worth of interest on bank loans to qualified businesses.
With the base rate at 7 percent, bank lending rates are capped at 10.5 percent. A 4 percentage point subsidy brings actual rates down to 6.5 percent for businesses borrowing under the scheme.
After much debate, the government last month said it would continue with the scheme, although the subsidy rate would be cut to 2 percent. The scope of lending will also be adjusted.
It was not immediately clear if Dung was referring to lowering benchmark interest rates, or tweaking the method by which borrowing rates are determined.
On Thursday, Dung again said growth was the policy focus.
"To reach higher economic growth rate in 2009, and 6.5 percent expansion in GDP in 2010 and an average of 7-8 percent in the following years, the economic stimulus measures need to continue in a way that is suitable to strengthen businesses and the overall economy," Dung said.
After recovering from an all-time low last week, the dong was slowly slipping again on the unofficial market, quoted at 19,170/19,270 per dollar.
The value of the dong implied in three-month non-deliverable forwards traded offshore by a small number of banks has fallen some 6 percent since late last month.
President Nguyen Minh Triet said earlier this week there would be no devaluation of the dong. But Dung suggested in parliament there would be more flexibility.
"We will increase forex management and oversee foreign exchange rates more flexibly, taking into account demand-supply relation and the general benefit to the economy including export promotion and trade deficit control and safeguarding the overall balance of payment and the foreign exchange reserves needed."