“The Government has only implemented part of the solution to save the economy by reducing bank interest rates to 9%,” said economist Vu Dinh Anh.
The Government has only implemented part of the solution
What is your assessment of the State Bank of Vietnam's decision to reduce the deposit interest rate at this time?
The SBV has reduced it four times within three months despite previous claims that they would reduce deposit interest by 1% each quarter. An interest rate of 9% is acceptable in this situation, but reducing it is only part of the solution to the problem.
Economist Vu Dinh Anh
What is going on on the market?
At many banks the terms of under one month have interest rates of only 2%, while those of one year are 9%. Such numbers just don't make sense. Banks and depositors are still uncertain about what the rates of deposits of one year or more should be.
Can enterprises fare well with current interest rates as they are?
The slump in manufacturing and doing business, high inventories, low liquidity and high interest rate have led to the bankruptcy of around 21,000 businesses. Now the focus should be placed on enterprises that have good business models.
But even once a workable policy is in place, it will not guarantee that our national economic targets will be met. We must identify the exact areas that must be addressed if we are to succeed.
If inflation continues to decrease, will the State bank continue to reduce the deposit interest rate?
The public continues to put their money into banks even though interest is only at 9%. Many of the nation's banks have plenty of capital, but lack viable borrowers. This means that further reductions in the deposit interest rate will increase access to credit for businesses.
Although inflation is being dealt with, it could become a problem again if our policy makers are too focused on increasing demand.
In fact, the interest rate is not the only, or even the main tool to fix the economy. We must also pay attention to sustaining growth and stabilising the currency. These two goals are sometimes at odds with each other. In order to achieve growth in the economy we must reduce interest rates, but to reduce inflation we would have to raise interest rates.
If interest rates are only part of the solution, what is the other part?
We have to make sure that credit is readily accessible, but this is something that the SBV does not have the capability to do on its own. Businesses that have access to credit do not want to borrow because they lack markets with demand. On the other hand, many banks are hesitant to lend because of increasing bad debt.