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VN government advised to take cautious steps to ease interest rates
At the statement by the State Bank of Vietnam to ease the interest rates, international analysts have advised the government of Vietnam to take moderate and cautious steps.
In fact, the business circle has many times urged the State Bank of Vietnam to ease the interest rates, or businesses would die because of the thirst for capital or overly high finance costs. However, the proposal had not been satisfy until March 6, when Governor of the State Bank of Vietnam Nguyen Van Binh stated that commercial banks have to ease the interest rates immediately.
In a statement released on the day, Binh said that the interest rates will be lowered by one percent in some days, including the ceiling dong deposit interest rate, which will be 13 percent instead of 14.
The decreased inflation rate has been cited as the main reason which makes people think that it is now the right time to ease interest rates. The consumer price index (CPI) in February increased by 16 percent in comparison with the same period of the last year, a lower increase in comparison with the 23 percent increase in August 2011.
However, experts have warned that if Vietnam hurries to loosen the monetary policies, it would suffer because the high inflation may return. The government of Vietnam decided to tighten the monetary policies in 2011 also because of the fear for high inflation, and the removal of the tightened policies within a short time may also cause high inflation.
In a report released on March 6, ANZ commented that the loosened monetary policies would help Vietnam obtain the targeted GDP growth rate of 6 percent. The announcement on cutting interest rates at this moment shows that the State Bank of Vietnam is confident of the capability to curb the inflation this year.
However, ANZ’s experts have also said that they can see the increasing risks of the inflation. Therefore, they believe that Vietnam should be take slow and cautious steps to ease the interest rates, in order to avoid possible changes in the price expectations.
The experts said that it would be better if the central bank waits until the end of March and begin reducing the interest rates from that time. The cautious moves in the implementation of the interest rate policy are really necessary aiming to ensure that the inflation rate is still within the control.
The economists from JP Morgan Chase Bank in Singapore said that they hoped that the central bank would wait until the second quarter, when the dong interest rates really can bring real positive interests to depositors, to decide to force the interest rates down.
The report by JP Morgan Chase, quoted by the Financial Times, said that it is not a worrying move to ease the interest rate. The worrying problem here is that the ceiling dong deposit interest rate reduction would lead to the increasing pressure on the dong after a long time of stabilization.
The deposit interest rate reduction would lead to the influences in people’s demand for dong, dollar and gold. Vietnam’s economy has a high level of dollarization, while it is easy for people to convert dong into dollar or gold.
The minus profits from deposits would prompt people to refuse to keep dong, which would lead to the depreciation of the dong and affect the payment balance.
The experts from the London based Capital Economics believe that Vietnam will lower the dong interest rates sooner or later, but they have warned that Vietnam should not loosen the monetary policies too quickly.
Bloomberg newswire has reported that the central banks in the region are considering halting the interest rate cut, for fear about the increasing inflation or oil price increases. The decisions may be made this week by the central banks of South Korea, New Zealand, Indonesia and Malaysia.
vietnamnet
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