Base rate status quo despite interest hikes

Scores of banks are still racing to hike mobilisation rates to woo depositers

Last week, with Decision 2868/QD-NHNN dated November 29, the State Bank decided to keep the base interest rate unchanged at 9 per cent in December.

In a sudden move on November 5, the State Bank for the first time in 12 months lifted the base rate from 8 to 9 per cent. The discount and refinance rates were also hiked by 1 per cent  each to 7 and 9 per cent, respectively.

In the market, banks are still  racing to hike mobilising rates to attract depositors. Viet A Bank and Western Bank are leading the race by offering a maximum deposit rate at 14.5 per cent, per year.

Le Xuan Nghia, deputy chairman of the Committee for National Fiscal Surveillance, said that allowing market interest rates to rise was the only way to curb inflation.

The consumer price index (CPI) accelerated from 9.7 per cent year-on-year in October to 11.1 per cent year-on-year in November. That means the index in November rose by 2.6 per cent month-on-month, against 1.6 per cent in October. It should be noted that the government set a single-digit inflation target for 2010.

Nguyen Thanh Toai, deputy general director of Asia Commercial Bank (ACB), said raising interest rates was not favourable for banks and enterprises.

“Banks have to raise rates in fear of losing customers to other peers. Meanwhile, we have to lift lending rates in tandem and this discouraged enterprises from borrowing,” said Toai.

HSBC economist for ASEAN Sherman Chan said Vietnamese policymakers appeared to have made a step in the right direction, by tightening monetary policies and ceasing to push credit growth earlier in the month.

“However, policy consistency is the key in rebuilding investor confidence from here. Further monetary tightening seems needed, especially since real interest rates are now going back in negative territory,” said Chan.

By end of last week, according to the State Bank’s report, mobilising rates varied from 12 to 16 per cent per year, while lending rate varied from 14.5 to 18 per cent, per year. On macroeconomic front, Vietnam’s industrial output growth rebounded in November, following a notable slowdown in the previous month.

Industrial production growth accelerated from 13.5 per cent year-on-year in October to 14.3 per cent year-on-year in November. For the January to November, industrial output was up by 13.8 per cent year-on-year against an annual target of 12 per cent for 2010.