Contrary to the hope for decline in interest rates, many businesses and borrowers were informed of interest rates increase in the first days of 2011. The new interest rates have jumped to 19-20 percent, equivalent to 2008’s level. Meanwhile, the capital mobilisation at high rates, sometimes even at an annual 16 percent which surpass the ceiling level, is becoming a barrier to reducing interest rates.

Nguyen Hien Vu, Director of the Dai Co Viet Logistic Service Joint Stock Company involved in export-import activities, said at present, businesses need capital to buy production materials and do business at the beginning of the year but with the current high interest rates, they are waiting to see if interest rates drop to estimate the next steps. All contracts for which Dai Co Viet had to borrow capital since late 2009 at an interest rate of 10.5 percent/year have been adjusted to increase to 18.66 percent. The interest rates doubled in just one year thus greatly affecting the company’s production and business.

“The State needs to find ways to control interest rates. If banks lower the lending interest rates to 15 percent, businesses can have access to their loans at this acceptable level. High interest rates may put our business at a high risk.”  Mr Vu noted.

With the high mobilised interest rates, depositors feel at ease while businesses are confronted with more difficulties. If the in-put interest rates range from 14.5-15 percent/year, the minimum lending interest rates will be 18.5 percent, maybe as high as 20-21 percent. If businesses borrow capital from banks to operate, it is hard for them to make a profit after paying monthly interest rates, production costs and worker salaries.  In the face of this situation, individual customers will also have to consider carefully before borrowing capital from banks as interest rates are too high.

Judging the situation, Dr Nguyen Minh Phong from the Hanoi Economic and Social Research Institute said the market-oriented competition in interest rates is the main cause leading to abrupt fluctuations in the mobilised interest rates set by commercial banks.

Phong also attributed high interest rates to the ineffective management of functional agencies and their failure to create a policy to control interest rates to ensure borrower safety as well as healthy competition.

Mr Doanh said, to lower interest rates, it is necessary to deal with market-related issues, including managing the exchange rate so that everything will operate under the market law. In addition, the State Bank of Vietnam (SBV) should devise solutions to harmonise the interest rate relationship in VND and US$. The current high mobilised interest rates in US$ will stimulate a section of people to preserve their property in US$ which will cause pressure on both the exchange and interest rates.

If the problem of high interest rates is resolved, it will facilitate business operations as their input costs will be reduced and possibly, there will be no need to adjust interest rates. However, there remains a big difference in the US$-VND exchange rates that need to be adjusted. In terms of economic efficiency, the adjustment of the exchange rate is not a measure to raise the competitive edge for exports.