Key bank moves to lift interest rate levels

The bank has not decided the size of the increase.
The head of the bank’s capital department, Hoang Hong Hanh, made the announcement soon after the General Statistics Office announced that the consumer price index (CPI) had increased 0.8 per cent to 7.2 per cent this month, forcing real deposit interest rates down to almost zero per cent.
Although he refused to speculate on the size of the increase, Hanh said the new rate would be based on the bank’s flow of cash, but would not be high enough to put pressure on lending rates.
“Dollar deposit rates are also likely to be increased as we expect the US Federal Reserve will soon raise its current basic interest rate of 1 per cent.”
Vietcombank currently offers 7.2 per cent per year for one-year dong deposits, much lower than the joint-stock commercial banks’ average of 8.2 per cent. It pays 1.9 per cent annually on dollar deposits.
With a rise in rates likely, Vietcombank will no longer adhere to its insistence just a fortnight ago that it would only raise the interest rate when it was short of mobilisation capital.
“I would not be surprised if deposit rates are increased by local banks in the immediate future,” World Bank lead economist Martin Rama said. “With the CPI on such an upward trend, it is one of the few ways of keeping customers from fleeing to other banks that offer higher rates and even to other currencies like dollars.”
Dr Le Dang Doanh, senior advisor to the Ministry of Planning and Investment, also thought the increase in deposit rates was inevitable.
“It is probably time for the State Bank to introduce some certain


measures within its monetary policy.” (what measures?? regarding??)
The central bank’s decision to hold the basic interest rate at 0.625 per cent per month since January, despite the continuous rise in the CPI, has divided experts.
Le Dac Son, general director of VPBank — the first to increase its rates — was unmoved by the decision.
“The basic interest rate only acts as a guideline so that commercial banks do not set their rates too high or low. In reality, it is not a major factor in deciding commercial banks’ rates, which are governed more by supply and demand for funds and the financial status,” he said.
Other banking experts did not agree. Some said the loose monetary policy, including low interest rates, adopted by the central bank was likely to fuel inflation and act as a brake on economic growth.
Speaking to Vietnam Investment Review last week, head of the State Bank’s Monetary Policy Department, Nguyen Dong Tien, declined to comment on the matter despite being the person in charge.
“I am not in a position to disclose whether or not the central bank will raise the basic interest rate next month [July]; that is confidential,” he said.
“I can only say that the interest rate policy will be managed in a most cautious and flexible way to ensure benefits for all stakeholders.”
VIR has learnt that early this week the State Bank will hold an urgent meeting to address the interest rate issue.