|
Joint efforts needed to prevent economic slump
Over the past month, the State Bank of Vietnam (SBV) has cut interest rates four times from 14 percent to 13 percent, then 10 percent and now 8.5 percent, in an effort to boost business production and prevent an economic slowdown.
The move demonstrates the Government’s determination to stimulate the credit and investment markets and introduce flexibility into its monetary management policies. How does this impact on the national economy?
Cutting prime interest rates is a proper and necessary policy to prevent an economic downturn and stimulate consumption. The SBV’s decision made all commercial banks lower loan rates, living up to businesses’ expectations, especially small- and medium-sized enterprises.
The ceiling interest rate is now down by nearly 40 percent compared to the highest level of 21 percent in mid-year. A decrease in loan rates leads to a fall in businesses’ production costs, making it easier for them to revamp production and find export markets.
In theory, cutting interest rates and loan rates will encourage citizens to purchase more goods and invest more in production rather than depositing money in banks. This is a positive sign for the national economy.
However, a quick decrease in prime interest rates poses a great challenge for commercial banks. The fact is that banks have mobilized large amounts of capital at high interest rates. When the prime interest rates are lowered, the more they lend, the more losses they have to suffer. This also may lead to a decrease in credit interest rates but businesses still find it difficult to access capital. Businesses borrow capital only when they feel they will make a profit. They do not take risks in the context of the economic slump.
Cutting interest rates is not a strong enough solution in itself to help businesses overcome difficulties. The business community and the national economy are awaiting positive signs from the Government’s economic stimulus package worth US$6 billion in the near future. Only when stimulus measures such as exempting taxes and extending tax payment deadlines are put in place synchronously, will the cutting of the interest rate help businesses boost production and prevent a period of economic stagnation and decline.
vov
|
