Deposit interest rates likely to go down

Deposit interest rates likely to go down

Low inflation in April has provided a good chance for the State Bank of Vietnam (SBV) to lower annual deposit interest rates to 7 percent and loan rates to 10 percent.

The UK-based Standard Chartered Bank said in a recent report that the SBV “may take advantage” of the country’s still-benign inflation to loosen its monetary policies and go for another rate cut of 0.5 percent on deposits.

Favorable conditions for cutting interest rates

According to the General Statistics Office (GSO), the consumer price index (CPI) in April increased by 0.02 percent over the previous month due to the impact of the pharmaceutical, medical services and transport sectors, but in the first four months of 2013 by 2.41 percent from late last year’s level.

By keeping inflation at 6-7 percent, the Government hopes the SBV will be able to lower deposit and loan interest rates for businesses and help promote credit and economic growth in the whole country.

The International Monetary Fund (IMF) said the weak domestic supply in 2012 brought the country’s real GDP down to 5.25 percent compared to the 6.25 percent recorded in 2011, but the risk of runaway inflation has remained high.

Many securities companies forecast that deposit rates in the second quarter of this year might drop to 7 percent if inflation was successfully kept at 6-7 percent.

Considering a ceiling on loan interest rates

Economist Le Dang Doanh insisted the SBV cut deposit rates by 0.5 percent this year as a precaution against the possibility of inflation rearing its ugly head again in the petroleum, exchange and financial markets.

Providing capital for SOEs

In fact, there is not much room for adjusting interest rates. If they are lowered again and again, inflation will get out of control. Once finding their deposit rates in the negative citizens will invest their money in other schemes like buying gold or foreign currencies, Doanh argued.

Although the macroeconomy is back on track, the Government is resolved to control inflation and money supply, even impose a ceiling on loan rates if need be.

Paradoxically, there remain unfair differences between deposit rates and loan rates and, more often than not, businesses have to access loans at a cutthroat rate of 15-18 percent.

As economists put it, cutting deposit rates to lower loan rates is no easy task. They propose banks first need to narrow the gap between deposit rates and loan rates, rather than cut deposit rates only, to ensure the rights of depositors as well as the flow of money into banks.

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