Foreign newspapers: interest rate reduction in VN not a worry

Foreign newspapers: interest rate reduction in VN not a worry

Contrary to all predictions, the move by the State Bank of Vietnam to slash the deposit interest rate further--to 9 percent per annum from June 11 has been a good move in the current circumstances.

The State Bank of Vietnam has once again eased the ceiling deposit interest rate from 11 percent to 9 percent, after it repeatedly slashed the interest rate just within a short time.

Vietnam’s GDP grew by four percent only in the first quarter of the year, the lowest rate since 2009. The inflation rate in May was 8.34 percent, the 2-year lowest rate.

International experts have shared the same viewpoint that the State Bank has every reason to slash the interest rate once more, since Vietnam has witnessed positive signs in the macro economy recently.

Just a couple of weeks ago, international analysts showed their concern about the too sharp and too rapid interest rate reductions in Vietnam, saying that this may make the high inflation return. However, experts now believe that no need to worry about the sharp interest rate reductions, because both the inflation and growth have been slowing down.

After announcing the ceiling deposit interest rate reduction to 9 percent on June 7, Governor of the State Bank Nguyen Van Binh announced the one percent reduction in other key interest rates. The refinancing interest rate, for example, has been eased to 11 percent per annum, re-discount rate to 9 percent, while the overnight interest rate for interbank online payment has been slashed to 12 percent per annum.

The Financial Times wrote that the move of the State Bank of Vietnam was made after the macroeconomic statistics show improvements. Standard & Poor’s on Wednesday upgraded Vietnam’s credit rating from “negative” to “stable” after Vietnam has successfully controlled the inflation.

The newspaper has commented that the upgrading in credit rating is really a reward for Vietnam’s fight against the escalating inflation.

The move of slashing interest rates is believed to be a common tendency in Asian countries which are striving to stop the decrease in economic growth. The Chinese central bank on June 7 also unexpectedly reduced the prime interest rate of Chinese yuan after three years.

The State Bank of Vietnam is making every effort to reduce the capital mobilization cost in an effort to help commercial banks slash the lending interest rates. As such, the main beneficiaries of the interest rate reductions would be businesses, who have been thirsty for capital due to the tightened monetary policies aiming to curb inflation.

The move is believed to encourage the merger of banks, which comes in line with the State Bank’s strategy on restructuring the banking system. Once the interest rates reduce, small banks would find it difficult to mobilize capital, because depositors would deposit their money at big banks, according to Prakriti Sofat, an economist of Barclays Plc in Singapore.

The International Monetary Fund IMF has advised Vietnam to pay more attention to stabilize the prices instead of slashing interest rates, even though this would lead to lower growth rate.

However, a report released by JP Morgan Chase said no need to worry about the interest rate reductions in Vietnam. In the context of rapid inflation decrease and low credit growth rate, no need to worry about the influences of the interest rate adjustment to the economic stability at this moment.

JP Morgan Chase has predicted that the inflation rate in Vietnam would be 6.8 percent in June and drop to 5 percent by the third quarter of the year.

VIETNAMNET