Interest rate cut contributes to supporting economic growth: economists

Consumers do transactions at VCB office (Photo: VCB)

Hanoi – The State Bank of Vietnam (SBV) has cut regulatory interest rates for four consecutive times since the beginning of this year, in the context that world interest rates continue to rise and stay at a high level.

The central bank’s decisions clearly reflect its efforts to support economic growth through the credit channel.

At present, the interest rate level basically remains stable, with deposit and lending interest rates tending to decrease gradually. The average deposit interest rate of commercial banks is about 5.8 per cent per year, down 0.7 per cent compared to the end of 2022, while the average lending interest rate in Vietnamese dong is about 8.9 per cent a year, down 1 per cent.

The SBV’s decision to continue reducing regulatory interest rates establishes a reduction trend for the market in the coming time, thereby orienting credit institutions to take more drastic steps to reduce lending rates and accompany businesses and people to contribute to promoting economic growth and recovery, said SBV Standing Deputy Governor Dao Minh Tu.

Dr. Can Van Luc, member of the National Advisory Council on Financial and Monetary Policies, said that the central bank’s move not only aims to assist banks and enterprises, and but also shows an increasingly clear sign of a shift in the monetary policy from being cautious to being loosened.

Along with reducing interest rates, economists expect the SBV will have more solutions to increase the money supply, which has increased very slowly in the first half of this year. SBV Deputy Governor Tu said that in February 2023, the State Bank assigned a credit growth limit to commercial banks nationwide at 11 per cent, following the year-long orientation of 14-15 per cent.

However, by June 15, the economy’s credit was still gloomy, standing at 12.32 quadrillion VND (524 billion USD), up 3.36 per cent from the end of 2022, and 8.94 per cent year-on-year, which showed weak absorption of the economy.

Dr. Luc proposed the central bank speed up the restructuring of credit institutions with weak performances in order to minimise unhealthy competition in interest rates.

The Government should make more drastic directions to improve the business and investment environment, and increase fiscal support measures for businesses, he added.

Policy interest rate expected to further reduce in H2 2023 The analysts also expect the average 12-month deposit interest rate will drop to 7 per cent per year in 2023.

Vested interests doing damage in banking Concerns are being raised by various stakeholders in Vietnam’s banking sector regarding the risks of cross-ownership, emphasising the need for regulatory reforms to enhance transparency, mitigate the dominance of major shareholders, and propose measures such as reducing ownership ratios and expanding information disclosure.

Further fall projected for interest rates Several banks have followed the State Bank of Vietnam’s (SBV) lead by lowering their base interest rates, aiming to encourage and facilitate increased credit demand within the market.