VietNamNet Bridge – The State Bank of Vietnam (SBV) has been warned against the hastiness in regulating the money policy. Vietnam would have to pay a heavy price for the decision to slash interest rates at unreasonable moments.

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Walking too quickly, one would trip and fall

A new interest rate level, the deepest low in the last five years, has been set up. The dong deposit interest rate has been capped at 7.5 percent, while the lending interest rate applied to preferential business sectors at 13 percent per annum.

In businessmen’s eyes, the State Bank has been going too slowly in slashing interest rates. However, Vu Dinh Anh, a well known economist, said the central bank has not been slow in easing interest rates, if considering the inflation rate.

If the consumer price index (CPI) decreases in may, the yearly inflation rate is still high at over 6 percent, which means that the current deposit and lending interest rates are reasonable.

The central bank has lowered the interest rates twice over the last 4 months, commented as the reasonable moves, which come in line with the expected inflation rate in 2013 and ensure the real positive interest rates for depositors.

Cao Sy Kiem, a member of the National Advisory Council for Monetary Policy, on one hand, said the current interest rates are overly high for businesses, on the other hand, said the interest rates can only be eased on the basis of the inflation rate reduction and macroeconomic stability.

This means that though the interest rates are still unaffordable to many businesses, they are suitable to the current macroeconomic conditions.

Nguyen Tri Hieu, a banker, said: “We understand the difficulties businesses are meeting. However, we can only ease interest rates if there are favorable conditions for us to do that.”

Dr. Kiem also said that the hastiness may get the situation worse, and that the quick interest rate reductions would not benefit businesses, but cause negative effects.

Dr. Trinh Quang Anh has commented that the State Bank has been put under the pressure to ease the interest rates quickly to rescue businesses which are now thirsty for capital.

The monthly CPI increases have been low over the last few months. However, this has been blamed on the low demand because people have run out of money. Meanwhile, the core inflation rate is still high. Therefore, slashing interest rates too sharply could be an unreasonable move.

Regarding the government’s request on narrowing the interest rate margin, Hieu said that the current margin is 6 percent, which is high because of the costs for dealing with the bad debts. If banks have healthy operation, the margin could be narrowed to 3 percent, which would allow slashing the lending interest rates and making bank loans more accessible for businesses.

Interest rate not a magic wand

Despite the continuous interest rate reductions recently, more and more businesses still have gone bankrupt and the production remains stagnant.

Tran Du Lich, a well-known economist, thinks that the interest rate can no more serve as an effective tool to revive businesses.

Anh also thinks that businesses should not rely too heavily on bank loans. In the context of the stagnation, businesses dare not borrow money to resume production. He commented that the credit has got stuck because of the bad debts.

Ngoc Son