Interest rates likely to go down

Dr. Tran Hoang Ngan, a member of the National Financial Supervisory Council, says that the current inflation rate indicates lower interest rates would be suitable.

The November inflation rate was estimated at 0.1-0.2 percent and is likely to remain under control for the rest of the year, he adds.

Other economists argue interest rates should be kept higher than the consumer price index (CPI) to encourage people to deposit funds in banks.

Dr. Ngan explains that positive interest rates aim to address three issues in addition to curbing inflation. These include boosting economic growth, increasing the employment rate, and stabilising the exchange rates.

Given the current situation, it is high time that the Ministry of Finance (MoF) and the Ministry of Industry and Trade (MoIT) were responsible for combating inflation, and the State Bank of Vietnam (SBV) focused on preventing economic slowdowns and increasing credit growth, says the senior expert.

According to Dr. Ngan, the central bank should offer private businesses incentive loans to alleviate their severe capital shortage.

“If businesses do not take on bank loans, Vietnam will be a dependent economy, and it is a serious problem, he warns.

“We used to adjust the interest and deposit rates at 7-8 percent and the lending rates at 10-11 percent. It will be better if the lending rates are maintained at the same level in 2013,” he suggests.

He posits lower interest rates will stimulate the purchasing power, especially in the real estate sector, and help reduce business inventory levels.

Inflation is likely to rise slightly in 2013 because of upward global trends in oil and food prices, Ngan forecasts, adding that such increases will support the domestic agricultural sector.

He points to the fact that the Government has succeeded in reining in inflation this year, but food prices have fallen considerably, dealing a blow to agricultural production.

On the contrary, former SBV Governor Cao Sy Kiem warns reducing the current interest rates below 8–9 percent is not easy. The interest rates will drop if inflation diminishes in the near future. In this case, it is harder for banks to mobilise additional capital when deposit rates reduce continuously, and this will eventually fuel an interest race among banks.

Kiem is concerned about businesses’ capital shortages, caused by their high inventory levels and rising bad debts.

He stresses the need to harmonise the relationship between businesses and banks if the national economy gets out of the woods. He also suggests banks should restructure their bad debts and offer more loans to facilitate business operations.

Banks often increase deposit rates to lure more capital, but Kiem believes that the current reduction in rates has revealed the real ratio of supply and demand on the capital market.