SBV interest rate management benefits businesses

The State Bank of Vietnam (SBV) has flexibly managed the interest rate policy to suit the market and currency exchange demand and support businesses, stated SBV Deputy Governor Nguyen Thi Hong.

Currently, interest rates are at an ideal level, the same level as in 2005-2006, she noted, adding that both deposit and lending interest rates have dropped compared to those at the end of 2014. 

Specifically, deposit interest rates fell 0.2%-0.5% per year, mostly for over six-month terms, while lending interest rates declined by 0.2%-0.3% per year, standing at about 6%-9% annually for short-term loans and 9-11 percent for middle- and long-term ones. 

Recently, inter-bank interest rates have decreased sharply to about 3%-3.5% per month, which is relatively low and stable, she said. 

Through the rest of the year, the SBV will continue flexibly introducing and withdrawing money from the market for banks to boost credit growth and better meet market demand, said Hong. 

The bank will also keep interest rate at a stable level while keeping a close eye on the operation of commercial banks for timely monetary adjustments, ensuring management targets set earlier this year. 

Hong re-affirmed that the SBV will keep fluctuations of the VND/USD exchange rate at a maximum of 2% in 2015, as set in its policy for the year, despite the fact that the rate has already been adjusted by 1 percent twice this year. 

This is part of efforts to guide the market and help import and export enterprises actively define their production plan in line with developments of the domestic and global currency market. 

Hong said that although the devaluation of the VND may benefit exporters, it would negatively affect manufacturers of export products made from imported materials, since the cost of raw materials will be higher. 

She noted that the textile and garment sector had to import 82.5% of materials in 2013, the wood sector - 70%, and footwear - 60%. 

Although the devaluation might benefit farmers in exporting agro-forestry and fishery products, it would also raise the price of fertilizers, pesticide and agricultural equipment and machinery. As such, exchange rate adjustments to improve price competitiveness would only be slightly effective in supporting exports, she held. 

At the same time, total imports of Vietnam account for as much as 80% of the country’s GDP, evidence of the country’s deep dependence on machinery and equipment imports. Thus, the devaluation of VND would pose additional difficulties for import enterprises. 

Statistics show that about 90% of Vietnam ’s import products are machines, equipment and materials and only 10% are consumer products. 

After careful analysis and assessment, the SBV will stick to the policy of maintaining the fluctuation of the VND/USD exchange rate in 2015 at 2% as set earlier this year, Hong concluded.