IMF says Vietnam interest rate cut may “confuse the market”

July 12 (Bloomberg)—The Vietnamese central bank’s decision to cut its repurchase rate last week may call into question the government’s determination to fight inflation, the International Monetary Fund said.

The State Bank of Vietnam lowered the repo rate for the seven-day term on July 4 to 14 percent from 15 percent. The central bank had boosted it from 7 percent at the start of November 2010. The rate appears to have become the benchmark for monetary policy, according to JPMorgan Chase & Co.

“We are a bit concerned that the cut in rates will confuse the market about the government’s commitment to sustaining the stabilization effort under Resolution 11,” Benedict Bingham, the IMF’s senior resident representative in Vietnam, said in an e-mail today in response to a question from Bloomberg News.

“A strong commitment to sustaining this effort is essential to re-establishing confidence in the dong and restoring macro-economic stability more generally,” Bingham said.

Fitch Ratings, Moody’s and Standard & Poor’s cut Vietnam’s sovereign-debt rating in 2010 deeper into so-called junk status.

Read more …