VINACHEM

Vietnam cut its interest rates tosupport a slowing economy even as the nation faces Asia’sfastest inflation.

The State Bank of Vietnam reduced the refinancing rate forthe first time since 2009 to 14 percent from 15 percent,effective tomorrow, it said in a statement on its website today.It also cut the discount rate to 12 percent from 13 percent andthe dong deposit cap for terms of one-month and above to 13percent from 14 percent.

Vietnam joins emerging markets from Thailand to Brazil inlowering borrowing costs as Europe’s sovereign-debt crisis andrising oil prices threaten expansion. The move contrasts withthe nation’s so-called Resolution 11 policy passed a year ago,which aimed to rein in an inflation rate that remains above 16percent even after easing for a sixth straight month in February.

“The rate cut aims to support growth, as inflationpressures have eased and liquidity in the banking system hasimproved,” Hai Pham, a Singapore-based analyst at Australia &New Zealand Banking Group Ltd., said before the decision. “Thecentral bank is confident about the inflation trajectory.”

The central bank had announced its intention to cut rateson March 6. The Government Office on Feb. 8 told the monetaryauthority to closely monitor the market in order to reducelending interest rates to “suitable” levels at a “suitable” time.

Inflation Rate

Vietnam’s inflation rate in February was 16.44 percent,down from 17.27 percent in January. It remains the fastest in abasket of 17 Asia-Pacific economies tracked by Bloomberg. Thenation is also juggling a trade deficit and liquidity concernsin the banking system.

The economy expanded 5.89 percent last year, down from 6.78percent in 2010, and the government aims for growth of 6 percentgrowth this year. The nation may undermine progress towardeconomic stability if it loosens monetary policy too soon, the World Bank and the International Monetary Fuund said in December.

South Korea, Indonesia and Malaysia held rates last week,while Brazil cut borrowing costs more than expected. \Indiaunexpectedly slashed the amount of deposits lenders need to setaside as reserves before a policy meeting this week.