Vietnam: Interest rates, inflation set to fall: central bank

by **ADMIN** Wed Jun 22, 2011 7:24 am

Interest rates, inflation set to fall: central bank

VietFinanceNews.com - There are signs that interest rates are cooling, but the State Bank of Vietnam will deploy measures to control credit growth, its governor, Nguyen Van Giau, has said.

Speaking at a press conference in Ho Chi Minh City last week, he said the consumer price index (CPI) has edged down since May and is likely to hover around 1 percent in June.

He said there were indications that interest rates would fall soon.

Some rates that lead market rates, like that on government bonds, had fallen to less than 14 percent per year and the seven-day interbank rate to 14-15 percent, he said.

Many joint-stock banks have hit the credit growth ceiling of 20 percent and would no longer mobilize deposits at any cost like they used to, he said, adding this would also pull down lending rates.

He also took questions from the media.

You said that the central bank will control interest rates in line with inflation, which means they will decline when inflation cools. So what does the central bank plan to do now?

In general, when the CPI goes down, the central bank will … pull interest rates down. We cannot immediately change the policy or slash interest rates.

The central bank will stick to the target of stabilizing the economy. So when inflation decreases, the interest rates will also reduce in a steady manner.

How does the 20 percent cap set on credit growth affect interest rates?

The 20 percent cap on credit growth is very helpful. At present, many commercial banks have almost hit the ceiling. There will be no banks wanting to mobilize funds at high rates since they cannot lend it to customers and firms.

When the banks have no channel for their funds, they will have to use it to buy bonds. But since they are close to the bond [purchase] limit in 2011, they will have to reduce deposit interest rates.

The credit growth did not seem balanced in the first five months of this year -- it went up by only 7.05 percent against a cap of 20 percent. So will it peak in the next seven months?

At present, the very high loan interest rates have prevented individuals and firms from borrowing from banks. When the economy is stable, the interest rates will fall quickly.

A suitable rate for credit growth by the end of June is 8-8.5 percent, and it would worry me if the figure turns out to be higher. But the central bank will … keep the growth under control.

Do you think commercial banks will manage to bring their loans outstanding below the 22 percent cap as required on June 30?

Currently, there are 23 banks with loans to non-productive sectors ranging from 22 to 50 percent, including 18 that range from 31 to 37 percent, and one with over 50 percent.

Those who fail to reduce their loans to non-manufacturing sectors to 22 percent by the end of this month and to 16 percent by year end will have to double their compulsory reserves.

Loans to real estate are worth VND222 trillion, down 5.5 percent since late 2010. The figure for HCMC is VND95 trillion.

This is a good chance to eliminate speculators from the property market.

http://www.vietfinancenews.com/2011/06/interest-rates-inflation-set-to-fall.html