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Real positive interest rate policy needs reconsideration: VNBA
The lending interest rates offered by some big banks have been decreasing slightly. However, Secretary General of the Vietnam Banking Association (VNBA) Duong Thu Huong believes that the interest rates must be cut further, and that the real positive interest rate policy needs reconsideration.
In order to cut lending interest rates, banks need to slash deposit interest rates. Do you think slashing deposit interest rates is feasible in the current conditions?
I think that we need to reconsider the viewpoint on keeping the real positive interest rate. People always think that their money must be preserved in value, and their deposited money must bring profit, or the bank deposit interest rates must be higher than the consumer price index (CPI).
I have been researching how other countries apply interest rate policies. In China, for the past year, yuan deposit interest rates have always been lower than the inflation rate. By February 2008, China’s CPI had increased by 8.7% over the same period of last year. The figures were 8.5% by April 2008 and 7.1% by June 2008, while the deposit interest rate was at 5-6% per annum.
The Ministry of Finance of the country issued 3-year and 5-year bonds at the interest rates of 5.74% and 6.34%, respectively. In the US, the inflation rate is 3%, while the US FED sets the interest rate at 2%. I asked why the countries applied such low interest rates, and I was told that in the context of an economic recession, low interest rates help stimulate the national economy.
In Vietnam, it is clear that the national economy’s development has been hindered by overly high interest rates. How can Vietnam maintain its growth rate and create jobs with such high interest rates?
However, if banks slash deposit interest rates, they will not be able to mobilise capital. Wouldn’t their liquidity become worse?
I attended many conferences, and heard businesses complaining about overly high interest rates, saying that no type of business can bring such high profits. VNBA believes that it is necessary to reconsider the benefits of subjects in the national economy.
High deposit interest rates can protect the interest of depositors, but cannot benefit businesses. I think that we need to harmonise relations. The real positive interest rate policy should be applied in harmony with the national economy’s development and profit in production and business.
Currently, the economic growth rate is about 6.5% per annum, while production and business profit is about 12% per annum at maximum, so the deposit interest rate must not exceed the said figures.
In the last months, though capital mobilisation interest rates increased sharply and stayed firmly high, VNBA’s members said that the mobilised capital in the whole banking system did not increase considerably. The capital simply went from one bank to another – the one offering higher interest rates. Previously, deposits increased by 5-6% per month, while deposits rose by 1.5% only in the first half of the year.
Some experts believe that in order to help banks, the central bank should loosen the credit growth rate limit from the current level of 30%. What do you think about this?
The 30% limit should be seen as a reference goal for credit growth, but it should not be applied in a rigid way. The demands for credit for export activities, agriculture production and key commodities production must be met.
Do you think that the central bank should reduce the compulsory reserve ratio or pay more interest on compulsory reserves in order to help banks reduce lending interest rates?
As we are following a tightened monetary policy, we should not ask the central bank to loosen the required compulsory reserve ratio. If the central bank does this, this would be the same as loosening the monetary policy. I think the central bank can pay interest on compulsory reserves in order to support banks’ financial capability. The reduction of the required compulsory reserve ratio should be carried out when we have a firm foundation and inflation decreases.
VNN
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