Keeping stable interest rates in 2017, as in 2016, is considered a thorny problem for the State Bank of Vietnam (SBV) amid the constant pressure of increasing interest rates.

Great pressure from raising interest rates

Since late December 2016, the market has seen an increase in deposit interest rates from 0.1-0.3% per year along with many promotion programmes at some commercial banks including Sacombank, VPBank, Eximbank, Techcombank and TPBank, among others.

The rise in deposit interest rates has been attributed to many reasons, partly reflecting less redundancy in liquidity at the year’s end. The Lunar New Year (Tet) often sees theincreasing demand for credit by both enterprises and people for payment and spending purposes. Tet is also the time for credit institutions to promote deposits to actively respond to new credit limits in 2017 including the reduction of the ratio of short-term funds used for medium- and long-term loans from 60% to 50%.

As a result, commercial banks often increase deposit rates or provide promotion programmes near Tet to attract more funds to balance their monetary flow and meet higher demand from customers.

The increase of deposit interest rates takes place at several commercial banks but still worries borrowers. In addition, fluctuations in the international financial market have had strong impacts on the exchange rate, which will also put pressure on interest rates.

The exchange rate for the Vietnamese dong to the US dollar has risen by 1.1-1.2% compared to early 2016. The devaluation of the dong against the dollar, along with the high pressure of increasing US dollar interest rates will raise the possibility of increasing the interest rates for Vietnamese dong.

According to economist Dr. Can Van Luc, there will be higher pressure on US dollar interest rate hikes in 2017 as the US’s Federal Reserve will continue to adjust its benchmark interest rates in addition to the rise in the inter-bank lending interest rates.

Curbing interest rates

Despite the pressure of interest rate increases, the central bank can still stabilise interest rates if it carries out appropriate monetary policy.

According to the survey on business trends among credit institutions conducted by the Monetary Forecast and Statistics Department, credit institutions were quite optimistic about their outcomes in 2016 and prospects in 2017 and a majority of them expected stable interest rates this year.

They were also optimistic about the possibility of attracting capital from the economy amid forecasts of a stable macroeconomy and higher economic growth rate. Currency stability and inflation within the safe level will facilitate the liquidity of the banking system.

Deputy Director of the SBV's Monetary Policy Department Nguyen Duc Long said interest rates were kept stable in 2016 thanks to the flexible implementation of SBV's solutions. After the rise in the deposit rates by 0.2-0.3% per year in the first three months of 2016, the rates were kept stable after April. Particularly, since late September 2016, some credit institutions have decreased deposit rates by 0.3-0.5% per year and lending rates by 0.5-1.0% per year for several prioritised sectors.

Lending rates now stand around 6-9% per year for short-term loans and 9-11% per year for medium- and long-term loans, Long noted.

Based on the results achieved in 2016, the central bank will persist with the target of stabilising interest rates in 2017 by carrying out synchronous measures including improvements to statistics and forecasting work to actively respond to market developments.

The central bank will also implement monetary policies in a flexible manner to stabilise the monetary market and the exchange rate and ensure liquidity in accordance with macroeconomic targets.

Amid the requirements from the Government and the expectations of the business community, the target of interest rate stabilisation will be the first challenge to the banking system in early 2017.

Nhan Dan