Gov’t should do more than lower interest rates

With the State Bank of Vietnam lowering interest rate on deposits of upto 12 months by 0.5 percent from March 27, there is hope the market may once again stabilize.

The Central Bank is prudent in just lowering the rate on deposits for one and three month terms from 8 percent to 7.5 percent a year, in an effort to meet the macro-economic target for 2013.

Subsequently, many banks simultaneously slashed deposit interest rates, in anticipation of an official rate cut by the Central Bank.

The Central Bank also cut other benchmark interest rates by 1 percentage point.

Thanks to the Government’s effective control on the inflation, liquidity has increased in banks and lower deposit interest rates have resulted in more money flowing into manufacturing.

The Central Bank has targeted a 12 percent credit growth for this year, a plan experts say is only achievable if lending interest rates were lowered to 10 percent for short-term loans, and 12-13 percent for long-term loans.

Economists said this move happened at the right time as March inflation is less than 7 percent. The decision to lower deposit interest rates at this time is quite in order. Noticeably, 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.

However, the question is to what extent lowered deposit interest rate will affect lending interest rates, because in reality the lending interest rates are still so high that enterprises cannot endure them.

In many meetings between the Central Bank and local businessmen, many complained that enterprises still suffer lending interest rates at 13-15 percent, resulting in difficulties in manufacturing. Therefore, SBV governor Nguyen Van Binh last week called on banks to cut lending rates to retain old customers and attract more potential clients.

Accordingly the Central Bank should have measures to shrink the lending interest rates. As for enterprises; they said the Government should support consumption of their products rather than lower lending interesting rates.

In fact, credit growth has just increased recently. By Central Bank statistics, by March 21, credit growth increased by 0.31 percent compared to February and 0.03 percent compared to last December.

Hence, the Government should carry out synchronous measures in addition to lowering lending interesting rates, as well as deal with bad debts and large inventories.

By Bao Minh - Translated by Uyen Phuong

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