Interest rates may continue to fall
  • | DDDN, | June 05, 2012 08:50 AM

Bank interest rates may continue to decrease this year, said Nguyen Duc Kien, Vice Chairman of NA's Economic Committee.


Though an economist of World Bank said Vietnam cut interest rate too quickly and that will badly affect the economy, Kien thinks bank interest rate can still be lowered in the current situation.

Would lowering interest rates at this time is appropriate?

Economic indicators show that it is an appropriate time. If we don't lower the interest rates, enterprises will run into even more difficulties. At the end of April this year, although a large number Vietnamese enterprises had announced bankruptcy, the number of newly-established enterprises were still 10,000 higher. This shows that our economy is gradually becoming stable. We have to create favourable conditions for those businesses that survived and convince investors that this is the right time and place to invest.

In theory, lowering deposit interest rate to 11% should have brought the lending interest rate for preferential enterprises to 14%. However many of these businesses claim they could not access credit at this lowered rate. Is the decision to lower interest rates feasible?

We have to look at the situation from more than one point of view. First, there is the capacity of enterprises to meet banks' loan requirements. Second we must also consider whether businesses who do qualify even desire loans. After all, consumers have been spending less. The banks themselves are only one factor in this equation, and blaming the situation entirely on them does not accurately reflect the reality.

Would lowering the interest rate cause trouble for deposit mobilisation?

People deposit money base on their inflation expectation. So if we keep the expectation in 2012 at 7-8% and deposit interest rate at 9-10% then the interest is still positive and attractive for people.

Do you think government can continue to lower interest rate?

The index of industrial development has increased again, and hopefully it will change from negative to positive in June. The economy is recovering, but it would be unrealistic to expect to see immediate and dramatic effects. If the EU can make a real recovery this will automatically provide a boost to Vietnam, as it is one of this country's largest export markets. I think the CPI this year will be around 7-8% and our economic growth will be around 5.5%. If this is the case, the interest rates could continue to lowered in accordance with the State Bank of Vietnam's plan. More importantly, it will encourage enterprises to borrow, invest and create new jobs.

In addition, as growth in commercial services and manufacturing is between 14% and 16% per year, interest rates of 10% and 12% will encourage more investment.

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