The State Bank of Vietnam announced Tuesday that the ceiling rate for deposits of a term under 12 months will be lowered by 0.5 percentage points as of Wednesday, March 27.

The new rate is thus 7.5 percent a year, while banks and depositors can negotiate on the rates for savings of a term of over 12 months.

The central bank also cut other benchmark interest rates by 1 percentage point.

Specifically, the refinancing rate will be lowered from 9 percent to 8 percent per year, while the discount rate will be lowered from 7 percent to 6 percent.

Meanwhile, the lending interest rate for five preferential sectors, including agriculture, exports, support industries, businesses that use high technology, and small and medium sized enterprises, will be capped at 11 percent a year, down from the current 12 percent ceiling.

Vietnam started to cap deposit interest rates and gradually reduce the rates in October 2011. The most recent cap reduction prior to the March 27 cut was on December 22, 2012, when the ceiling was lowered from 9 percent to 8 percent a year.

The move was made to accordingly reduce lending rates to assist local businesses, the central bank said in a statement released in 2011.

On March 20, many banks simultaneously slashed deposit interest rates, in anticipation of an official rate cut to be ordered by the central bank.

For instance, Vietcombank lowered the rate for deposits of a term between one and three months from the 8 percent cap to 7.5 percent a year. It also dramatically cut the rate for deposits of a term of over 12 months, dropping it from 10.5 percent to 9.5 percent.

ACB meanwhile imposed a 0.2 percentage point cut on rates for one- to six-month terms, while offering a 7.6 percent a year rate for 9-month deposits.

The first two months of this year saw outstanding loans at banks drop by 0.28 percent against December last year, while deposits rose 3 percent.

The central bank has targeted a 12 percent credit growth for this year, a plan experts said would only be achieved in case lending interest rates were lowered to 10 percent for short-term loans, and 12-13 percent for lending of a longer term.

SBV governor Nguyen Van Binh last week called on banks to cut lending rates to around 13 percent, saying that banks could not lend and would suffer along with other industries if they continuously lend at the high rate of 15 percent, according to Vietnam News Agency.

Binh said banks should accept a fall in profits to be able to increase their lending and ensure sustainable growth.

It was estimated that banks could make a profit if the difference between deposit and lending interest rates was roughly 4 percent, VNA said.