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The rate race
In recent days, unofficial interest rates on term deposits at many commercial banks climbed to between 17 and 18 per cent per year. The rates on non-term deposits also rose from 2 or 3 per cent to 9 or 11 per cent per year.
The interest rate race has returned and heated up further since the State Bank of Viet Nam decided to raise a series of prime rates including refinancing and overnight lending from 12 per cent to 13 per cent early this month.
Tension has heightened in the interest rate market after the increase in petroleum product prices, which has in turn seen prices of several essential goods go up.
Independent market watchdogs confirm that the interest rate race among banks has returned and the competition has become even fiercer.
They say the race is basically illegal since the central bank has set an interest rate cap of 14 per cent on dong deposits. However, the current deposit interest rate cap policy is not suited to market mechanisms, they add.
This is because in the current context of high inflation and continued devaluation of the dong, the interest rate on deposits is controlled while the lending rates are set afloat. This means the capital demand and supply in the market cannot be matched.
Because deposit interest rates are capped at an "unreasonable" level many people are reluctant to send their savings to banks, pushing banks to offer higher returns and attract cash so as to improve their liquidity.
Meanwhile, the Government's measures to curb inflation do not appear to be successful because there is still a large volume of cash being circulated on the market. Unless Government policy gets closer to the actual situation on the ground, banks are likely to find new ways to attract deposits – and the interest rate race will continue.
Thien Ly
vietnamnews
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