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Why hasn’t Vietnam slashed interest rates?
High inflation is why the central bank has kept the same basic interest for the past two months. So why is it keeping it unchanged this time?
In addition to the $700bil bailout which the US president submitted and was approved by the US Congress to rescue the financial market, the US Fed has also put forward supporting measures. It has decided to slash the basic interest rate from 2% to 1.5%, the eighth interest rate cut in the past year.
The move by the Fed was followed by the central banks of many countries in the world. The European Central Bank cut the rate by 0.5% to 3.75%, and the UK Central Bank by 0.5% to 4.5%. The central banks of China, Canada, Sweden and Switzerland have also made the same decisions.
A question has been raised about why Vietnam is not doing the same. Experts give some reasons.
The said countries aim at two targets by making the move: avoiding the domino collapse of banks and financial institutions and avoiding the danger of economic recession in the context of low inflation rates (less than 4% in the US, UK and EU, nearly 0% in Japan).
The situation is different in Vietnam. The banking system has been stabilised with low bad debt ratio (4.5% at the highest and 0.4% at the lowest). The liquidity of banks has improved (some banks have even reported excess capital). Meanwhile, the inflation rate in Vietnam remains very high, forcing Vietnam to consider the fight against inflation its top priority.
Vietnam’s economic growth rate in the first nine months of the year still reached 6.52% with the growth rate in the third quarter higher than that of the second quarter. It is very likely that the growth rate of the whole year will still reach 6.7%, a relatively high figure compared to other countries.
Regarding the basic interest rate, now 14% per annum, experts say very thorough consideration should be made before the rate is changed. In general, the consumer price index increases slowly in October, while it goes up more sharply in November, December, January and February. If the State Bank slashed the rate, more money would be put into circulation, which would be contrary to the policy on curbing inflation. The inflation rate could be as high as 25%, almost double that of the rate of 12.63% in 2007.
So because the fight against inflation is still the most important task, the central bank has decided to keep the same basic interest of 14%. Meanwhile, it has taken other measures to help banks reduce lending interest rates (offering higher interest rates for compulsory reserves).
VNN
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