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Efforts made to stabilise monetary market and take initiative in controlling economic decline
The State Bank of Vietnam (SBV) has put forward different measures to implement the tasks assigned by the Government to stablise the macro-economy within the context of the global economic recession. In order to make clear the assessment on the impacts of the implementation of the monetary policy tools relating to the interest rate and the exchange rate, Nhan Dan reporter has had an interview with SBV Governor Nguyen Van Giau.
Within the context of the current global financial crisis, what measures have been taken by the banking system to ensure the system security and stabilise the monetary market and the macro-economy?
The financial crisis in the US has quickly spread on a global scale. Though the US has announced a US$700 billion bailout package while the governments and the central banks of many countries have implemented various rescue measures, the world financial and monetary market has still been complicated and threatened to lead to a global economic downturn.
As Vietnamese economy has been integrating into the international economy, the financial crisis and the danger of world economic depression will have certain impacts on the Vietnamese economy, particularly on goods prices, export activities, foreign investment disbursement, foreign remittances and tourism.
To cope with the impacts of the world financial crisis, the SBV has managed in a flexible way, tools of monetary policy to continue curbing inflation, take the initiative in controlling economic decline by maintaining monetary market stability, ensuring the safety of credit organisations, and working policies to support enterprises and production households to overcome difficulties, maintaining and developing production, controlling the growth of total payment instruments and credit account standing in 2008 at a reasonable level, ensuring liquidity for credit organisations at high level and gradually reducing lending interest rates while keeping the exchange rate at a reasonable level in conformity with the market supplies and demands to promote exports and reduce trade deficit.
In more than a month now, the SBV has carried out solutions on the interest rates, compulsory reserve which have received appreciation from enterprises and local people. What are the objectives and positive impacts of these solutions?
In the early months of this year, when inflation became complicated and tended to increase, the SBV has carried out a tightening monetary policy with priority given to curbing inflation and stabilising the macro-economy which has brought about positive results.
Currently, the macro-economy has become stable, inflation has been restrained. However, enterprises and production households are still facing many difficulties due to the impacts of the world financial crisis. Therefore, for more than one month now, tools of monetary policies have been used in a flexible way to create more favourable conditions for credit organisations to reduce lending interest rates and increasing credits to the economy, thus providing financial support to enterprises to continue expand their production and trading activities.
The SBV has reduced the prime rate to 12%, the refinancing rate to 13% a year, the discount rate to 11% a year. The compulsory reserve ratios to deposits in Vietnam dong and US dollar have also been dropped by 1% and 2% respectively and the daily trading band for the US$/VND exchange rate, applied by credit institutions, has been widened to +/- 3% against the inter-bank rate, up +/- 1% compared to the old rate.
These measures have helped reduce the maximum lending interest rate for loans in Vietnam dong from 21% to 18% a year. Most of State-owned commercial banks are applying lending rates at around 15% -16% a year. The Bank for Agricultural and Rural Development of Vietnam has even offered a 14.4% a year lending interest rate to production households and 15% a year to small and medium-sized enterprises working in agriculture and rural sectors. The exchange rate has continued to increase slightly while available capital and lending loans of credit institutions keeps increasing.
The aim of these necessary adjustments is to support production enterprises so that they can have conditions to maintain and expand their production. In addition, the widening of the daily trading band for the US$/VND exchange rate will help regulate the exchange rate flexibly, correctly reflecting the demands and supplies of foreign currencies on the market, thus contributing to reducing trade deficit and promoting exports, ensuring reasonable and sustainable economic growth, in line with the international and national economic situation.
The US$/VND exchange rate on the black market in recent days has exceeded VND 17,000 for a US$. What is your opinion of the issue and what are the SBV's point of view on exchange rate management in the rest of the year?
The increase of the US$/VND exchange rate on the black market in recent days which has exceeded the ceiling level of the exchange rate allowed in inter-bank transaction market is mostly due to psychological feeling and speculation. Moreover, the total transaction quantity on the black market is quite small. Therefore, it has not had any big impacts on the production and trading activities of enterprises.
The SBV governor expects the exchange rate will become stable again within the new trading band and affirms that the SBV is totally capable of intervening to ensure stability for the market.
Currently, the lending interest rate is 18% a year, down 3% a year compared to the period in mid-year. Some banks are currently offering lending interest rates of 14% to 15% for farmers' households, small and medium sized and export enterprises. However, some enterprises have voiced their opinions that in fact, the factual lending interest rates are still high compared to their payment capacity. What is your opinion?
In its management, the SBV has had a close watch over the domestic and foreign economic and monetary situation as well as the demands and supplies of credit capital on the market to make timely decisions on adjustment of prime rate and other major interest rates in a flexible way in conformity with the requirements of the economy and the objectives of the government.
Recently, after the SBV lowered the prime rate, the lending interest rates offered by credit institutions have also dropped. In a market economy, credit institutions operate as trading enterprises in the monetary and credit sector. They borrow to provide loans. Therefore, they must make such a calculation as to be harmonious for both the lending and mobilising rates to ensure that they can mobilise capital while they are able to cover expenses and make profits.
As inflation becomes restrained, credit institutions will consider reducing mobilising interest rates to reasonable levels. Thus, the lending interest rates will also be lowered.
In the recent difficult period, many enterprises have made great efforts to reduce costs and kept borrowing loans at reasonable levels to maintain development and effectiveness in trading and production.
Access to bank loans for real estate projects is still difficult. What is your opinion of this? What is the actual situation of the current real estate trading loans?
The real estate market experienced sharp fluctuations in the year-end months of 2007 and the first quarter of 2008 and had kept reducing gradually ever since. In general, there are different assessments of the market. However, many are of the view that the high growth of the market is largely due to speculative elements, not due to the market supplies and demands relation.
The current account standing of real estate loans is VND 115 trillion, accounting for 9.15% of the total account standing of the banking system. Total account standing of real estate loans by commercial banks in Ho Chi Minh City, the busiest market, as of late October 2008, is VND 61 trillion, equivalent to 15% of the city's total account standing.
In 2008, Ho Chi Minh City commercial banks have committed to providing VND 14.4 trillion to 151 real estate projects. So far, VND 9.3 million has been disbursed. The remaining will continue to be disbursed in the coming time. However, some projects have yet to be arranged for loans as land clearance work has yet to be completed. These difficulties will be considered case by case specifically in the coming time.
THUY VAN
Nhan Dan
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