Negotiated or market interest rates can now be charged on Vietnamese dong - denominated short-term loans at commercial banks, the State Bank of Vietnam decided on April 14, in its latest move to deregulate lending interest rates.

The move follows deregulation of interest rates on medium and long-term commercial loans back on March 12. The deregulation caused rates to increase to an average of 16-18 percent per year and to spike as high as 20 percent.

“The interest rate deregulation aims to ensure the stability of the monetary system, meet capital demands, and lower interest rates,” State Bank Governor Nguyen Van Giau said on April 14, noting that the decision was widely supported by commercial banks.

Giau urged credit institutions to charge rates at a durable level based on capital supply and market demand and to publicly list lending rates. Lenders were also required to report lending demand to the central bank, he said.

The State Bank is trying to balance the demand of enterprises for lower borrowing costs while capping a rapid credit expansion which could increase inflationary pressures. It strongly urged major banks not to charge more than 14.5 percent per year on medium and long-term loans and 12 percent on shorter term loans.

To discourage interest rates from climbing too high, the central bank earlier this month poured additional capital into the banking system. Following the move, interbank rates last week fell by 0.13-0.42 percentage points, the State Bank noted on April 14. Overnight and weekly interbank rates ranged at 7.16-8.47 percent per year, while longer term loans were at 10.18-10.28 percent.

The nation has targeted credit growth of 25 percent in 2010, well below last year’s actual growth of around 39.6 percent. Rising interest rates in the first quarter, however, held credit growth to just 3.34 percent.

The latest tack by the central bank has marked a new age of deregulated interest rates following a period starting late 2007 in which interest rates were capped and pegged to the prime rate.

In its Asian Development Outlook issued on April 13, the Asian Development Bank predicted Vietnam would see inflation of 10 percent this year and recommended that the Government and the central bank continue tightening monetary and fiscal policies to limit inflation and devaluation pressures./.