The State Bank has started loosening its monetary policy through pumping capital into commercial banks to muscle-up export and rural area credits.
 

The agricultural sector will come in for greater financial support this year.

The central bank aggressively pumped money through open market operations (OMO) with bigger volumes of both two and four-week valuable papers in recent weeks.

Last month, around VND10 trillion ($526 million) was refinanced to Vietinbank to support its credit for exports and another VND10 trillion to Agribank for medium and long-term agricultural sector credit after seeing the consumer price index (CPI) in July rise only 0.6 per cent.

“The credit growth rate in August is expected to rise more than in previous months. The average deposit interest rate may fall to below 10 per cent a year from 10.9 per cent which would not affect total deposits,” said State Bank governor Nguyen Van Giau.

A central bank report read that the January-July credit growth was 12.97 per cent against the beginning of this year while the deposit growth was 16.3 per cent.

“Both deposit and credit growth rates stayed at the right pace and our policies will focus on meeting the whole-year credit growth of 25 per cent,” the governor said.

The central bank planned to pump around VND30 trillion ($1.5 billion) into agricultural sector credits by the end of this year through commercial banks. The Agribank will allocate around VND4 trillion ($210.5 million) from compulsory reserve cuts allowed by the central bank to support medium and long-term credits in future weeks.

“Stimulating agricultural sector credit will not affect foreign currencies as the money will run domestically with the expenditure plans of enterprises and farmers within Vietnam,” said Giau.

The new credit support move stems from the January-July CPI staying at 4.84 per cent against the end of 2009 and banking system having operated calmly during the past seven months. However, the central bank will still keep reining in credits for imports which may cause unstable credit growth.

VinaCapital managing director Andy Ho said the credit growth was not at a level that allowed enterprises to expand their businesses. “Negotiated lending interest rates are still too high for enterprises to access loans except some high-profit return projects,” he said.

The central bank revealed that in the first half of the year it had difficulties in dealing with the reduction of VND80 trillion ($4.2 billion) of the country’s total deposits including half from enterprises during Tet and had to wait for stable macro economic figures to take stronger action.