Interest rates are expected to go down this year because they are presently too high and cannot rise any higher, an economist has said.
|Transactions conducted at a Southern Bank branch in Ho Chi Minh City (Photo: SGGP)|
This year has seen skyrocketing interest rates due to the soaring inflation in 2010, with savings interest rates and lending interest rates being 14 percent per year and 17-18 percent per year respectively.
According to economists, the rates are already too high for enterprises; therefore, it is unlikely that interest rates will go any higher.
Enterprises and commercial banks have hoped that the State Bank of Vietnam will regulate interest rates in compliance with the Law on Credit Institutions, which took effect early this year.
Banks said that this will give them the flexibility in adjusting interest rates in accordance with foreign exchange rates and inflation.
Economists said the interest rates will drop by the end of the first quarter of 2011, because demand for production and business funds from various enterprises will decrease after the Tet holiday.
In addition, banks will be able to mobilize funds from residents more easily. This is because the inbound remittance will increase, and people will have more money in cash.
Therefore, banks might reduce their lending interest rates to 15-16 percent by the second quarter of 2011.
Some commercial banks said they cannot lower the interest rates yet, because the expenses for mobilizing funds are still very high.
However, they said they can offer lower rates to their regular client base.
The central bank said early this year that it will use the prime interest rate to curb high interest rates, but not as a monetary policy management tool.
The bank will focus its management on refinance, open market operations (OMO) and rediscount rates.
The central bank said OMO rates will be flexible and be adjusted to market rates.
Deputy general director of a joint stock bank said that to lower interest rates and stabilize the monetary market in 2011, drastic solutions will have to be taken to contain inflation.
Economists said there should be a special mechanism concerning small commercial banks.
They said for the long run, interest rates for the dong should be floated in the government’s direction. However, in abnormal market conditions, the central bank must regulate market interest rates.
The central bank also said that it has targeted credit growth at 23 percent for 2011, two percent lower than last year, and loans will be prioritized for the production sector.