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Removing ceiling interest rate a wise move
How will the decision to raise the base interest rate to 12% and remove the ceiling interest rate help settle current problems and what problems could arise after the decision goes into effect?. Experts talk about this.
Huynh The Du, Lecturer of the Fulbright Economics Teaching Programme: Base interest rate should be more flexible
The removal of the ceiling interest rate scheme and the increase of the basic interest rate prove to be necessary moves at this moment. With the moves, the maximum interest rate will be raised to 18%, which, though still lower than the inflation rate, seems to be more reasonable to encourage people to deposit at banks instead of saving money in dollars or gold. (Under the current regulations, stipulated in the Credit Institution Law, the commercial interest rate must not be 150% higher than the base interest rate).
As money comes back to banks, this will help improve the low liquidity of credit institutions, while the implementation of the monetary policy and the task of restraining inflation will become more feasible.
In fact, commercial banks still have a ceiling interest rate, now set at 18%, but the moves have helped banks become more flexible in deciding the interest rates for them to ensure mobilising enough capital and ensure liquidity.
However, the ceiling rate of 18% will help minimise possible risks in credit activities. Banks will choose projects with high profitability and safety to fund; they will not run after high-profit projects that are unsafe.
However, the State Bank of Vietnam should point out what the maximum interest rate of 18% means. Otherwise, bankers, who are very keen on complicated calculus, will offer the nominal interest rate of 18%, but businesses, in reality, have to pay much higher interest rates, maybe 25% or 30%.
I can say that the moves made by the State Bank of Vietnam are the most suitable in the current conditions. However, closely supervising the market and making timely reactions remain very necessary.
I have to say that in the longer term, the State Bank should target regulating the market’s interest rate based on capital supply and demand, as administrative orders should exist for a short period only, or they will distort the market’s development.
Dr Nguyen Quang A, Head of the Institute for Development Studies: It’s time to filter investment projects
Previously, as the interest rates were too low, people did not make deposits at banks, but decided to inject money in other fields (gold, foreign currencies).
It is true that higher interest rates cause difficulties for investment projects. However, the good thing about the high interest rates is that it forces investors to reconsider the projects to focus on the most feasible projects only.
The interest rate, if suitable, will serve as a very useful tool to allocate the society’s strength, clean the market, and ‘filter’ investment projects.
Dr Nguyen Minh Phong of the Hanoi Institute for Socio-Economic Studies: Higher interest rates will encourage people and businesses to deposit money in banks
The decision by the State Bank still cannot bring the positive real interest rate to depositors, but proves to be a firm step towards the positive real interest rate mechanism.
In the immediate time, businesses will have to access bank loans with higher costs. Moreover, the banks with low liquidity will raise deposit interest rates high. However, these things will not be worrying. There won’t be an interest rate race, as banks will not mobilise capital and then keep money in coffers, they will mobilise capital for re-lending after considering the demand in society.
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