HANOI (July 10): Vietnam’s surprise lowering of interest rates for the first time in three years may help to support economic growth, but raises credit risks in a nation still grappling with a hangover of bad debt.

The central bank reduced the refinance rate by 25 basis points to 6.25% late on Friday and also lowered the discount rate to 4.25% from 4.5%. The changes come into effect on Monday, the State Bank of Vietnam said on its website.

“These rate cuts will make it cheaper for businesses and individuals to borrow, so it will help spur loan demand and bolster consumption,” said Do Ngoc Quynh, head of treasury at Bank for Investment & Development of Vietnam in Hanoi. “Vietnamese companies still highly rely on bank lending. We just need to be mindful about how the loans will be used to avoid increasing bad debt.”

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