Bank rate hikes affect businesses in dire need of capital for production
VOV.VN - Despite banks moving to raise interest rates that has caused numerous difficulties for businesses, the move could be viewed as a necessary step toward maintaining the stability of the forex market and ensuring anti-inflation requirements.
This assessment was made by Hoang Van Cuong, member of the National Assembly (NA)'s Finance and Budget Committee, in an exclusive interview granted to Radio the Voice of Vietnam (VOV) reporter.
As of October 25, the State Bank of Vietnam (SBV) continued to raise its operating interest rate by 1%, thereby leading to other domestic commercial banks moving to also raise their ceiling deposit interest rates and lending rates.
Cuong pointed out that the decision has certainly exerted a significant impact on local firms that are in dire need of capital sources to bounce back in the post-COVID-19 pandemic period.
“The bank’s decision is part of efforts to ensure the smooth management between the exchange rate and interest rates which would minimise the impact of global currency fluctuations and help to maintain anti-inflation requirements, similar to the actions of other countries around the world,” said Cuong.
However, he went on to day the move could reduce businesses’ chance to access bank loans for production.
“Businesses have just resumed production for several months and they need time and loans to keep work up and running. Therefore, high lending rates could impact business recovery efforts and lead to the risk of production stagnation,” explained Cuong.
Given the current context, Cuong said it is still necessary to use fiscal tools such as tax extension and tax deferrals as well as interest rate compensation to support businesses.
According to the legislator, an advantage of the economy at present is that Vietnam is maintaining a relatively low ratio of public debt to GDP at about 43-44% compared to the allowed ceiling of 60%. Thus, there is still room to use more overspending, meaning businesses have the chance to get assistance.
Vietnam is implementing a socio-economic development and recovery programme, including a 2% interest rate support package for loans mainly for prioritised groups which, Cuong said, would help businesses to reduce the burden of escalating interest rates.
With regard to solutions to stabilise the macro-economy, he emphasised the need to curb inflation and exchange rate due to the depreciation of currencies hindering investors seeking to inject money into the country, thereby affecting economic growth and development.
The legislator also admitted that it is difficult to say whether interest rates will increase again or begin to fall, because this completely depends on the law of supply and demand in the market.
“We cannot keep the price of our currency unchanged, while another currency appreciates. We have to accept that the Vietnamese dong may have to depreciate at some point, but if the domestic currency depreciates much, it will certainly affect investors and people,” Cuong analysed.
In addition, the inflation rate should also be accepted at a certain level in the context of the world’s rising inflation to balance import and export activities. In his opinion, if the inflation rate is too high, it will immediately affect people’s life as well as business production.
“Vietnam has succeeded in managing its monetary and financial policy over the past two years, and I do hope the central bank’s recent decisions will not cause any shock to the economy,” he confided.
