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VIETNAM - Central bank ponders rate cut

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VIETNAM - Central bank ponders rate cut

Post  lexie on Tue Feb 14, 2012 10:39 am

February 14, 2012

Central bank ponders rate cut

The central bank plans to lower interest rates this year, but is unsure about the best time to do it. The Government recently issued a resolution requiring the central bank to lower interest rates at a proper time in order to meet society's needs.

The Governor of the State Bank of Viet Nam, Nguyen Van Binh, said bank deposit interest rates would likely drop to about 10 per cent per year if the Government achieves its set target of controlling the rate of inflation at 9 per cent or 9.5 per cent by year-end, while at the same time settling banks' liquidity problems.

Such a decrease is possible because since August the monthly consumer price index (CPI) has slowed to a rate of less than one per cent.

Moreover, the central bank is bent on solving the liquidity of some credit institutions.

A director of a State-run bank, who declined to be named, said that although the CPI had showed signs of lowering deposit interest rates to less than 10 per cent this year, as expected, it had proven to be difficult because the liquidity of many banks was uncertain.

After Tet (Lunar New Year), many banks continued to launch promotions and even illegally offered deposit interest rates beyond the central bank's 14 per cent cap in order to raise more capital.

If they do not impose penalties on these banks, deposit interest rates will remain too high.

The director of the State-run bank said that banks should receive specific plans to cut their interest rates.

To help banks lower interest rates, Dr. Can Van Luc, a high-ranking advisor for the Bank for Investment and Development of Viet Nam (BIDV), said the Government needed to seek more ways to reduce inflation and settle the banking sector's liquidity situation.

The SBV should continue refinancing on the open market operation (OMO) and should merge banks that are weak, according to Luc.

Dr. Nguyen Duc Kien, vice chairman of the National Assembly's Economic Commission, told Dau Tu newspaper (Vietnam Investment Review) that interest rates would be cut in the near future.

Interest rates might be forced to drop, Kien said, adding that the main duties of the central bank in 2012 were to ensure the liquidity of the banking sector and keep the value of Vietnamese dong, and lower lending interest rates.

Meanwhile, Dau Tu revealed that many foreign banks, including ANZ and HSBC, warned that Viet Nam should not be premature in cutting interest rates or implementing loose monetary policies because it could distort the market, thus enabling inflation to return.

Sumit Dutta, CEO of HSBC Viet Nam, also suggested that the SBV continue pursuing tight monetary policy to constrain inflation in 2012.


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