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Not right time to cut basic interest rate
The lower CPI increase in August, slight decrease of interbank interest rates and lower lending interest rates all have made people think that the basic interest rate will be slashed by the State Bank of Vietnam in an effort to loosen the monetary policies. However, Cao Sy Kiem, Senior Economist, Member of the National Advisory Council for Finance and Monetary Policies, said that he does not think it is the right time to slash the basic interest rate.
How has the issue of cutting the basic interest rate been discussed at recent meetings of the council?
The national economy recently has shown positive signs with better payment capability of banks, and strong recovery of the stock market. Though macroeconmic measures have just shown minimal effects, the transparency in applying policies has helped restore the confidence of people. That explains why people still deposit money at banks, though they still cannot enjoy real positive interest rates.
However, I have to say that the side effects of the policies on tightening policies have not been revealed fully. The effects of the petrol price increase may not occur only this month, but in the coming months as well. In fact, the issue of cutting the basic interest rate has been put on the table, but I don’t think it is the right time for this, as positive signs seem to be lacking.
If the plan of cutting the basic interest rate was implemented, how much would it be cut?
I think there will be sharp interest rate cuts, by 0.5%, for example, from 14% to 13.5% or 13%.
Maybe the State Bank of Vietnam does not intend to slash the basic interest rate right now, but it should make public the interest rate policies. When the inflation rate goes down, the interest rate will also have to go down. In the past, the basic interest rate could be maintained for ten years, but nowadays we need more flexible adjustments. In fact, many commercial banks have cut deposit and lending interest rates.
Do you think that some banks still maintain high interest rates because the state bank has not cut the basic interest rate yet?
22 commercial banks have lowered their interest rates, both deposit and lending, which is really a good thing. However, these are the banks with good financial capability, while the lower interest rates are applied to some subjects only. In fact, businesses still find it difficult to access bank loans.
Some sources say that the 30% credit growth rate limit will be loosened. What would you say about this?
It is clear that banks are facing big difficulties; however, they have to follow the policy to restrain the credit growth rate at 30% at maximum. However, I have to say that the same 30% limit should not be applied to all sectors. In some sectors, we can allow an 80% growth rate, while in others, a 10% growth rate would be reasonable.
What would you say about the CPI’s performance in the last months of the year?
It is expected that the CPI will be less than 2% thanks to the food price decreases. However, we believe that the highest peak of inflation has not been seen. If we have good management, inflation will reach its peak in December 2008 or April 2009 at the latest, and then go down. Vice versa, the high inflation will last until the end of the next year.
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