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Rate cut urged to help firms
The country's prime interest rate should be cut from 9 per cent to 8 per cent to help enterprises gain access to loans more easily, the National Financial Advisory Committee said in their 11-month economic analysis on Monday.
This should be one of several drastic actions "bravely" taken by the Government soon, it said, pointing out three main arguments for an immediate rate cut.
Firstly, the interest rates of Government bonds tend to decline at the end of the year.
Secondly, inflation is being tightly controlled at below 8 per cent, which means that there is little difference between deposit interest rates and inflation rates.
There is no risk of deposits being withdrawn from the banking system as well, as other investment channels including gold, securities and property are too tough at present.
Thirdly, exchange rates are stable and people no longer prioritise holding foreign currencies.
The committee said it supposed that interest rate cuts didn't affect people depositing money at banks, citing that deposits had increased about 15 per cent this year although mobilising interest rates had been slashed by 5 per cent since the beginning of the year.
Government Office vice chairman Pham Viet Muon said the Government would look at falling consumer price indexes over the past months and hold a meeting this week to discuss interest rate adjustment.
He said that 7.5-8 per cent would be an ideal mobilising rate for now and if these levels were reached, banks would be able to set lending rates at 10 per cent.
The committee said interest reduction should be considered a prerequisite to helping enterprises solve difficulties. "The number of companies dissolving and halting their operations continued to increase in November and there is no sign that this will stop; firms are still facing challenges in all aspects," it said.
They added that sharply increasing costs of material, fuel and transportation were a major hindrance to business recovery. Enterprises have had to cope with high interest rates of over 15 per cent for over 30 months, and their financial costs increased nearly 25 per cent within the first quarter of the year, according to the committee's report.
While suggesting the nation control lending interests at no more than 150 per cent of the prime interest rate, the committee said the Government should speed up its guarantees for bank loans to facilitate credit flow.
The committee said the national economy had escaped from the bottom zone but the momentum for recovery was still uncertain with a lack of driving forces to push up total demand.
It noted that inflation had been slowed down due to weak demand and firm's lack of capacity to absorb capital, in addition to the Government's cautious policies.
As well as staying constant with the goals of controlling inflation and stabilising the economy, the Government needed to give clear messages to the people about banking restructuring and bad debt resolution, it said.
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