Vietnam's central bank will cut three policy rates from Monday, as easing inflation gives the government room to lower companies' borrowing costs and get more money flowing through the economy.

The 100 basis point cuts in the refinancing, rediscount and overnight rates on dong-denominated loans will make it cheaper for banks to borrow from the central bank, which should help increase credit growth.

With the Consumer Price Index down to just 6.61% in April from a peak of 23.02% in August 2011, the government has been urging banks to lower lending rates to get more cash sluicing through the economy.

The refinancing rate—the rate the State Bank of Vietnam charges on its loans to commercial banks—will be cut to 7% from 8%, the central bank said. It is the seventh cut since March 2012, bringing the refinancing rate down from a high of 15%.

The central bank also will cut the rediscount rate to 5%, after lowering it to 6% from 7% on March 26, and the overnight interest rate in the country's interbank market to 8% from 9%.

Eoin Treacy's view The Vietnamese administration has been combating an inflationary problem for a number of years. Retail demand for gold soared as savers saw their savings chipped away. Concurrently, the devaluation of the Dong which was aimed at improving competitiveness made imports temporarily more expensive which further fuelled inflationary problems. The fact that the Dong has stabilised near VND21000 over the last 18 months can be viewed as an indication that policy is returning to a more measured approach.

A delegate at last year's San Francisco venue for The Chart Seminar lives in Vietnam and opined that the situation was stabilising as inflationary pressures were brought under control.

The stock market has tended to share a high degree of commonality with The Shanghai A-Share Index. Both rallied to break medium-term progressions of lower rally highs and have stabilised in the region of their 200-day MAs. Vietnam is leading and a sustained move below 450 would be required to question medium-term recovery potential.