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Q1 deposit, lending rates likely to stay up
Banks are unlikely to cut either deposit or lending rate in the first quarter, analysts have said. With prices usually running up sharply during Tet (The Lunar New Year), inflation was likely to touch double digits, making it hard to effect a cut in either rate, Sai Gon Tiep Thi newspaper said in an analysis.
While the need to keep lending interest rates high in an inflation scenario is obvious, deposit rates will also remain high because otherwise real interest rates will plunge. The real interest rate is the difference between the nominal rate offered by banks and the inflation rate.
Besides, the global economy may be on the recovery track but remains unstable, which will have some repercussions for Viet Nam.
With the efficiency of public investment – as measured by the Incremental Capital Output Ratio that assesses the minimal amount of capital needed to generate the next unit of production – slumping to 6.2, the Government has been forced to pump in more and more capital to achieve growth.
To achieve a targeted 7.75 per cent GDP growth this year, it plans to issue VND45 trillion (US$2.3 billion) worth of bonds.
But unless the real interest rate is attractive, it will be unable to sell the bonds, another reason for interest rates to remain high.
But possibly the biggest spoiler is the skewed nature of deposits and loans at banks. While short-term deposits account for more than 70 per cent of banks' mobilisation, medium- and long-term loans account for 70 per cent of outstanding loans.
With most depositors willing to pull out their deposits in a blink if they get higher rates elsewhere, liquidity is a major worry for banks.
As a result, they have to continue paying high interest rates.
vietnamnews
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