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Deposit interest rates overly high
The problem now is that interest rates must be low enough to ease the financial burden on businesses, while they must be high enough to follow the policies on tightening monetary policies in order to restrain inflation.
New CPI, old interest rates
Vietnam’s consumer price index (CPI) in September will rise only 0.18 percent, the lowest monthly increase since the beginning of the year. As such, the country’s CPI has soared an accumulated 21.87% against December 2007 and 22.76% over the same period last year.
The CPI increases have been slowing down in the last few months, from 3.91% in May to 2.14% in June, 1.13% in July and 1.56% in August. Meanwhile, the deposit interest rates keep stable at 1.4-1.5% per month, or 16.8-18% per annum. The interest rates, which took shape at the time, when the CPI increases were high, have become unsuitable as the CPI increases have been slowing down.
Some people may argue that though the CPI of the last three months has decreased considerably, the CPI of the first nine months of the year still increased sharply by 22% over the end of 2007, and depositors lost money. However, experts believe that depositors should share in the difficulties of the national economy. Depositors will still be able to get real profit with the interest rate of 15%, not counting unexpected factors like natural calamities and price fluctuations.
The experts say that if the current interest rates maintain, depositors will get short-term profit, but they will have to pay the penalty for this in the long term. Overly high interest rates will burden businesses, cause production stagnation and job losses.
Basic interest rate should be kept in place
Experts believe that the State Bank of Vietnam will maintain the same basic interest rate for October 2008, despite the sharp falls of the CPI increases in the last few months. Decreases of the basic interest rate would cause the misunderstanding that the central bank is loosening monetary policies, while in fact, the government is still determined to tighten monetary policies.
Moreover, the reduction of the basic interest rate would pave the way for lending interest rate decreases, but this would put hard pressure on commercial banks, forcing them to lower lending interest rates, while they still have to mobilise capital at high costs.
With the current deposit interest rates, banks can only break even if they lend at 21% per annum.
Slash lending interest rates, how?
Experts emphasise that the lending interest rates must be lowered to ease the burden on businesses, but the reductions must not affect the policies on the monetary policy tightening.
They said that the central bank needs to pay more interest on compulsory reserves to limit the sum of money in circulation, and help banks save on capital mobilisation costs.
The central bank has decided to raise the interest rates for compulsory reserves from 1.2% to 3.6% per annum. However, bankers say that the rates prove to make nonsense as they now have to pay 15-17% for the capital.
VNN
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