It also cut overnight interest rates for electronic and compensation payments in the inter-bank market from 8 to 7 percent.

The reductions, the second for the year - the first was on January 24 - are effective immediately.

The central bank gave no reasons for its decision but the lower refinancing rate will reduce borrowing cost for banks that need to raise funds.

The benchmark rate remains unchanged at 7 percent and this means the lending rate cap cannot exceed 10.5 percent.

The unchanged rate is likely to ease speculation that the central bank was about to reduce the benchmark rate to 6 percent. But bankers who spoke to Viet Nam News saw the decision as the central bank's way to measure the market's response before cutting the benchmark rate to less than 7 percent.

"Cutting the benchmark rate would lower interest rate and make it cheaper for customers to access bank loans in order to boost the economy," said an anonymous HCM City-based bank deputy general director.

"But pumping more loans into the economy may reignite inflation so the central bank will have to be very cautious in making any decision."

In Ha Noi, another bank deputy general director said: "We need time to observe the market before we respond. We are in a rather sensitive time for monetary policy, especially when the Government has launched its second stimulus package," he said .

Source: Vietnam News