Viet Reader.


Premier Newspaper for Vietnamese Worldwide

Multi-target monetary policy and interest rate reduction requirements of the SBV

"Reducing operating interest rates" was the keyword on the financial market last week. Some opinions predict that the State Bank of Vietnam (SBV) will soon reduce the operating interest rate at the end of this week or early next week to support the economy in the context of a 4-month decline in import and export growth. , the number of enterprises suspending operations increased rapidly, and credit growth was low. However, for the SBV to continue to reduce the operating interest rate after two consecutive reductions in March and April, many factors may be needed to support it, especially in the international context.
Read more: Vietnam's import-export volume drops in early 2023: Evaluation » Breaking News, Latest World News Updates - VietReader Viet Nam

Accordingly, in the recent meeting on May 18, the views of Federal Reserve officials are increasingly divided on whether to raise interest rates at the next meeting in June or pause the credit tightening route. Some not so harshly suggest that the Fed skip the June rally and continue tightening in July.

This view shows caution in the context of many concerns that the recent volatility of the banking industry and the war on the public debt ceiling will drag down the U.S. economy. U.S. lawmakers are still negotiating to raise the public debt ceiling before the June 1 deadline to avoid default.

Investors expect the Fed to raise interest rates at its June 13-14 meeting and consider the move in July.

U.S. policymakers have raised interest rates by 5% in less than a year. However, inflation in the world's largest economy remains well above its 2% target, and the unemployment rate of 3.4% hit its lowest level in decades.

The meeting earlier this month was a turning point for the FED. After raising interest rates by 25 basis points (0.25%), the FED said it would cautiously evaluate policy in each session. For now, officials are still waiting for more macroeconomic data.
With two consecutive reductions in operating interest rates in March and April, Vietnam is said to be "ahead" of the world in easing monetary tightening. In the recent macroeconomic update report on Vietnam, Standard Chartered Bank also forecasted that the SBV may reduce the refinancing interest rate by 50 basis points (0.5%) to 5% by the end of the second quarter of 2023, after which interest rates will remain until the end of 2025.

However, this organization said that it is also possible that interest rates will increase, especially at the end of the year, because the State Bank may focus on the stability of the financial market rather than growth.

In a recent report, Dr. Can Van Luc, Chief Economist of BIDV, said that most central banks' operating interest rates will be flat until the end of 2023 and may start to lower interest rates from the beginning of 2024 to the end of 2025.

In that context, Vietnam's monetary policy must continue to be more multi-targeted, focusing on monetary and financial stability.

Dr. Can Van Luc recommend that management agencies change their status from being strict and cautious to "relaxing cautiously, supporting growth." It is also necessary to reduce interest rates, increase access to capital and debt restructuring policies, Support liquidity, and promote the restructuring of credit institutions under Project 689/QD-TTg dated June 8, 2023.

There should be close coordination between monetary and fiscal policies in the coming time. "We can further consider the impossible trinity (Exchange rate - inflation and interest rates.) According to China's experience, China has accepted sacrificing exchange rates to ensure capital flows while still controlling risks. Vietnam can consider what to do now", Dr. Can Van Luc said.

At a conference on the banking industry, contributing to removing difficulties and promoting production and business in the Southeast region more than a week ago, Governor of the State Bank Nguyen Thi Hong said that in the context of the Fed's slow interest rate hikes, In terms of improvement, the State Bank will consider and evaluate the conditions, if possible, reduce the operating interest rate. The SBV has also directed credit institutions to accompany businesses and people to save costs to reduce lending interest rates in the coming time.

However, the Governor also cited the comments of international experts that Vietnamese businesses should be relying more on credit. This makes it difficult, quickly leading to a domino effect for the entire banking industry. Therefore, it is necessary to continue to develop the capital market, including the bond market, when banks only focus on short-term loans, ensuring more efficient operation.

According to the State Bank of Vietnam, up to now, the interest rate level has been stable. New interest rates will decrease gradually in the first month of 2023.

Accordingly, the average new deposit interest rate of commercial banks is about 6.3%/year (decreased by 0.18%/year compared to the end of 2022); The average new lending interest rate in VND of commercial banks is about 9.3%/year (down 0.65%/year compared to the end of 2022).
Also read: Major banks lower deposit interest rates » Breaking News, Latest World News Updates - VietReader Viet Nam

However, at this conference, businesses said the above interest rate is still relatively high. Ms. Ly Kim Chi, President of the Ho Chi Minh City Food and Food Association and Vice President of the Ho Chi Minh City Business Association, proposed that the State Bank reduce the operating interest rate by 0.5 percentage points in May to create favorable business conditions. Banks reduce loan interest to 7-8 %/year.

Ms. Ly Kim Chi explained why it is difficult for businesses to recover with a lending interest rate of around 10 %/year.

About author
You should write because you love the shape of stories and sentences and the creation of different words on a page.
View all posts
More on this story