|
From inflation to deflation
With the new decisions made by the State Bank of Vietnam on slashing four kinds of interest rates, more cash will be pumped into the national economy. How will this affect the inflation? Le Dac Son, General Director of the VP Bank, talks about the issue.
What is your assessment about the new decisions made by the State Bank of Vietnam earlier this week?
What is happening in reality shows that if the State Bank continues tightening the monetary policies, businesses will stay indifferent to bank loans due to the overly high interest rates.
Commercial banks now have excessive capital, while businesses, which really need capital, cannot access bank loans. A lot of businesses have been falling into decay.
Statistics showed that the consumer price index (CPI) increase in September was just 0.18%, while the increase may be minus in October. So you can see that the inflation may turn into deflation. Deflation proves to be more dangerous than inflation as it will bring about very bad consequences: the national economy cannot develop, unemployment rate increases, and a lot of businesses fall into bankruptcy.
Therefore, I think that the State Bank of Vietnam has made a timely decision to slash interest rates.
With the slashed interest rates, more cash will be pumped into circulation. How will this affect the inflation, then?
As I said above, the national economy is in the danger of facing deflation. Money has been kept in the banks, people have tighten their purse-strings, commodities circulation has been slow while production has been stagnant. In such a condition, banks have to pump more cash into circulation to encourage production and stimulate the demand.
The Government needs to clarify the reasons of high inflation in order to settle the inflation to every root. In the first months of the year, the Government focused on fighting inflation by tightening the monetary policies. However, inflation does not only originate from banks.
The exceedingly tightening of the monetary policies may cause the deflation, a very bad thing for the national economy. The Government has selected the flexible measure in fighting inflation: it pumps the capital back to small and medium enterprises, the economic sector which has been effective in doing business.
We need to clarify that high inflation has also originated from the low efficiency of public investments and the massive investments of state owned economic groups. If the investments can be controlled strictly, the fight against inflation will still succeed, while the production does not become stagnant.
And I have to say that if we let the state owned enterprises access bank loans impetuously, the efforts made in the last two quarters to fight inflation will become nonsensical. If the high inflation breaks out once again, this will cause immeasurable consequences.
What would you say about the capital mobilization and loaning in the last months of the year?
With the new decisions, the deposit interest rates of banks have decreased. However, the average input interest rate remains as high as 16% per annum, while the lending rate at 18% per annum
We have found out that the reasonable and affordable interest rate for businesses is 16% per annum. Therefore, I think that banks will further slash deposit interest rates by another 1-2%.
But I have to say that though the lending interest rates will decrease, this does not mean that the credit growth rate will be as high as in previous years.
VNN
|
