Vietnam’s central bank cut interest rates on Friday after the government reported inflation in January was the lowest in the Southeast Asian country in almost a year.

The rate cut by the State Bank of Vietnam, which brought the benchmark base rate down 150 basis points to 7%, had been widely expected as the government has been trying to spur borrowing and the economy in the face of the global slowdown.

Central bank governor Nguyen Van Giau said in a decision signed on Friday that the refinance rate would be slashed to 8% from 9.5%, and the discount rate would go to 6% from 7.5%.

“The objective of these rate cuts is to implement the urgent measures by the government to prevent an economic slowdown and maintain business activities to create jobs in an economy that has been affected by the global financial crisis,” the bank said in a statement.

Vietnam’s move is in line with central bank rate cuts across Asia and globally. Earlier this week, Malaysia’s central bank slashed its policy rate by a surprise 75 basis points to its lowest in more than 10 years.

This month, South Korea’s central bank cut interest rates by 50 basis points to 2.50% and Thailand last week cut rates by 75 basis points to 2.0%, a four year low.

Vietnam’s central bank also cut the interest rate on banks’ dong compulsory reserves to 3.6% from 8.5%.

Friday’s move was the first of the year, and the sixth since late October. The base rate has been halved since then.

Earlier, the government statistics office reported Vietnam’s 15th consecutive month of double-digit annual inflation, but the rate of 17.48% for January was the lowest since last February.

The statistics office estimated prices rose 0.32% in January compared with December due to a bump in demand ahead of the Lunar New Year holiday. It was the first monthly rise since September. Annual inflation in December was 19.89%.

Food prices, which make up 42.85% of the CPI basket, rose 38.55% in January compared to a year ago, the General Statistics Office said in its monthly report.

PRODUCTION AFFECTED

With the headline figure coming down, economists say Viet Nam appears to have tamed inflationary pressures.

In the first half of last year, with credit expanding at an unsustainable rate, consumer prices soared and the trade deficit widened, nearly precipitating a currency crisis.

The trade gap has narrowed, too. On Thursday, the government estimated a trade deficit of $300 million in January, a fraction of the $2.41 billion deficit the country had in the same month last year.

Since the end of last year, with the global economy slowing, Hanoi has turned its focus to spurring economic growth.

However, the statistics office also reported that industrial output contracted by 4.4% in January compared with the same month last year.

“Industrial production in January continued to be affected by both the global economic crisis and the shutdown of production around the Tet holidays,” it said.

It estimated January’s industrial output was 50.64 trillion dong ($3 billion), down 8.6% from about 55.43 trillion dong in December. Output has been slowing for several months. (Reuters)