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Banks turn cautious about rate cuts
Banks in Vietnam have received another call to lower interest rates, but neither the lenders nor the central bank are expecting any cuts to be large, economists said on Monday.
The Vietnam Banks Association, which acts as a mediator between the State Bank of Vietnam and lenders, called on banks last Wednesday for the third time in the past six months to cut dong deposit rates, this time to 11 percent from 11.2 percent by Oct. 15.
The association referred to amendments the central bank made to a new set of banking safety rules last Tuesday, suggesting that they would make it easier in future to raise deposits.
But the industry association had previously urged banks to slash deposit rates to 10 percent and lending rates to 12 percent by the end of September, and the new target of 11 percent appeared to reflect an understanding that macroeconomic developments were making it hard to bring rates down by much.
The association's request came as the Ministry of Planning and Investment said economic growth would reach 6.7 percent this year, exceeding the official target of 6.5 percent.
September annual inflation hit 8.92 percent, quickening for the first time in half a year.
"With current market movements, the recent decrease in interest rates is positive, but they cannot drop much more," the newspaper Vietnam Investment Review quoted government adviser Tran Du Lich as saying.
Many lenders considered the central bank's original set of safety rules too stringent. Lich said the amendments may not have a direct impact on rates, but they aimed to give banks with low liquidity more time to prepare for new requirements.
The central bank was also urging lenders to cut rates to help spur economic growth, but its enthusiasm appeared curbed by the 1.31 percent surge in consumer prices in September.
"Monetary policy needs to guarantee the two targets of boosting economic growth and containing inflation are met. It is necessary to cut interest rates, but it requires time and gradual steps", Nguyen Dong Tien, deputy governor of the State Bank of Vietnam, said last week.
But Le Dang Doanh, an independent economist, warned that a minor cut in rates would not be enough.
"Vietnam's economic growth this year has been fueled by public investment and an increase in exports. If interest rates remain high, businesses, especially those in the private sector, will feel the heat early next year," he said.
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