The lending interest rate is currently equal to the 2005-06 rate thanks to the flexible interest rate cap regulations the central bank has applied since 2011, according to a report the bank released this week.

By reducing deposit interest rates by 7 - 10 percent, the bank was able to get the lending rate down by 9 - 12 percent against mid-2011.

Director of the central bank's Monetary Policy Department Nguyen Thi Hong said that in the second half of 2011 when inflation was high and liquidity of commercial banks was weak, the central bank focused on strictly punishing violators of interest rate regulations while keeping the annual deposit interest rate of 14 percent unchanged.

In early 2012, the central bank announced plans to cut interest rates by one percent per quarter on average to orient the market, Hong said. After five successive cuts, the deposit interest rate cap was six percent lower.

The deposit rate also went down by roughly one percent in the first nine months of this year. The interest rate cap for deposits of terms less than six months is seven percent and the interest rate cap for longer deposits has been removed.

Currently, deposit interest rates at commercial banks are 1 - 1.2 percent per year for demand deposits, 5 - 6.5 percent per year for one to six month terms, 6.5 - 7 percent for six month to below 12 month terms and 7.5 - 9 percent per year for 12 month and 12 month-plus terms.

Lending rates are 7 - 9 percent per year for short-term loans for prioritised sectors such as agricultural and rural development, exporters, supporting industries, small- and medium-sized firms and high-tech enterprises. The rates for other production and business sectors are 9 - 11 percent. Borrowers with feasible business plans or healthy financial status can access loans at rates of only 6.5 - 7 percent.

Despite the sharp cut of interest rates, deposits in dong by mid-September still rose 13.78 percent against December last year, proving the success of the central bank's monetary policy management, Hong said.

Additionally, there has not been any unhealthy competition among commercial banks to attract depositors even though the central bank removed the interest rate cap for long-term deposits. The new interest rate curve shows improved capital distribution, according to Hong.-VNA