Interest rates in Vietnam will likely fall further in June thanks to government support and easing inflationary pressures, bankers said on Monday.

The government has asked the central bank to take further steps to bring deposit rates down to around 10 percent and lending rates to 12 percent.

It also urged the central bank to increase liquidity in the economy by boosting money supply, the government said in a statement on Friday.

Rates would stabilize in the second half of the year, said Le Xuan Nghia, Vice Chairman of the National Financial Supervisory Commission. His forecast was in line with market expectations.

The new directive is the government's latest in a string of steps to bring interest rates down to support economic growth, a trader at a Hanoi-based bank said.

"I don't think there will be a sharp fall in interest rates, but they may go down slightly because of central bank support via open market operations, refinancing activities or increasing the money supply", he said.

Banks now raise deposits at an industry-imposed cap of 11.5 percent, while state-owned banks offer loans at around 13 percent.

Fixings for dong loan rates with most terms on the interbank market edged up over the past week, Reuters data showed. Overnight loan rates were up to 7.01 percent from 6.63 percent six days earlier.

The interbank market has seen no sudden movements in the past week and the slight increase in terms was likely a result of specific transactions, rather than a fundamental trend, the trader at the Hanoi-based bank said.

"The interbank market is quite stable, which is a sign that the banks have managed their liquidity", he said.

There are some fundamental reasons to expect interest rates to fall, including a shift in some policies to promote growth, Nghia said.

"The central bank has reconsidered money supply for 2010 in an effort support GDP growth", he told Reuters.

The recent appreciation of the dong against the dollar enabled the central bank to fulfill two tasks at the same time, buying dollars to increase foreign exchange reserves and injecting cash into the banking system, bankers said.

The case for lower rates is also being supported by expectations that inflation will soon ease from near double-digit levels, said Le Xuan Nghia. Vietnam's annual inflation was estimated at 9.23 percent in April, the government statistic office said. Prime Minister Nguyen Tan Dung has raised the 2010 target for inflation to 8 percent from 7 percent, which was set by the National Assembly late last year.

Rol.vn - Source: Vietnews