First, if possible, the central bank will cut operating interest rates. Second, all the units in the banking sector must pursue a monetary policy which closely follows market performance.

The Governor asked credit institutions to "accompany businesses and people, cut costs to save money and ease interest rates".

The instructions by the head of the central bank address the current situation of Vietnam’s economy which is being hindered by sky-high bank loan interest rates, difficulties in bank loan access and problematic liquidity.

However, analysts said the Governor’s message shows hesitation, especially in cutting interest rates, because any move to be taken will still depend on the international situation. 

The US Federal Reserve (FED) has slowed down its interest rate hikes. The exchange rate still depends on many factors. Liquidity needs improvement.

Meanwhile, in Vietnam, monetary policy has to shoulder many different tasks, and the tasks are sometimes opposite. 

For example, the policy needs to be designed in a way which both helps curb inflation and boost growth, and stabilize macroeconomics. The most important thing is ensuring the liquidity of the economy and the stabilization of the VND value.

In fact, SBV has slashed operating interest rates twice (0.3 and 1 percent per annum) in March and April 2023 to help businesses overcome difficulties. However, the interest rates remain high and ministries and economists have many times called to further cut interest rates.

HCM City Mayor Phan Van Mai said the average interest rate is still at 10 percent per annum, sometimes 13-14 percent, but businesses want 7-8 percent.

The Ministry of Planning and Investment (MPI), which is in charge of the development of enterprises, said the interest rate hike causes enterprises’ production costs to increase proportionally. 

Enterprises are facing difficulties; especially as capital flow is very weak.

According to Le Xuan Nghia, a member of the National Advisory Board for Financial and Monetary Policies, if the inflation rate is 4 percent, a deposit interest rate of 6-7 percent per annum would be reasonable.

Cash flow, liquidity

High interest rates are a problem for enterprises, but weak liquidity is even a bigger problem.

Liquidity is just like blood that nourishes cells. Lacking liquidity, businesses and banks both will face difficulties.

Many enterprises complain they cannot borrow capital though they have collateral and have feasible investment projects, while many banks have capital but cannot disburse because of limited credit room.

At the third session of the 15th National Assembly, a deputy asked whether the mechanism to grant credit limits to banks every year is in line with the current situation and the world. 

Many banks have complained they have run out of credit room and have asked for more "quota".

The Governor gave a detailed answer to the question and decided to increase the credit limit by 2 percent just two weeks before the end of 2022. 

Many experts criticized the tight monetary policy pursued by the central bank, warning that the consequences would be serious if banks refuse to provide loans when the corporate bond market was facing difficulties, inflation rate is not high, and people and businesses rely on bank credit after Covid-19.

They said that there are not many countries in the world which still use the credit limit scheme. Instead, they administer the banking system with market technical measures such as Basel 2 and capital adequacy ratio (CAR).

The credit scheme has been applied for the last 12 years, and to some extent, it has shown its effect in business administration. However, it is the right time to apply market measures, so that both banks and businesses can use each other’s services in the most effective way.

The slow disbursement of state budget and public investment capital lead to liquidity problems and interest rate hike. This shows that the fiscal policy needs to ‘join forces’ with the monetary policy to support the economy.

Tran Thuy