"There is an art to managing interest rates"
26/09/2011 11:45

It is difficult to know how long the State Bank of Vietnam should maintain interest rates at 14 percent per year, or when it should remove this ceiling and allow capital to flow smoothly to avoid the vicious cycle of inflation.

There is an art to managing interest rates, said Phan Thanh Ha, Deputy Director General of the Finance and Monetary Department under the Ministry of Planning and Investment.

Most commercial banks are now applying the 14 percent mobilised interest rate to all deposits from one week to 60 months.

Ha said the monetary market seems to be distorted. She attributed this to several reasons, one of which is the SBV’s introduction of circulars 13/2010/TT-NHNN and 19/2010/TT-NHNN, which raise the capital adequacy ratio for Vietnam’s banks from 8 to 9 percent and prohibit banks from lending more than 80 percent of their deposits.

The circulars have resulted in a shortage of money for the credit activities of commercial banks, which generate the majority of their revenue.

At the same time, commercial banks are asked to raise their charter capital to VND3,000 billion, so they will try to mobilise more capital at any price, she said, adding that this is the main reason for a race to increase interest rates.

According to Ha, the two circulars are necessary. However, the SBV did not take into consideration Vietnam’s current situation so it could not anticipate the circulars' negative impacts on the banking system and the economy in general.

In order to raise the capital adequacy ratio to 9 percent, commercial banks must mobilise more capital, which is unlikely to happen in a short period of time.

In response to a question related to the SBV’s recent decision to reduce lending interest rates to 17-19 percent per year, Ha said it is not easy to apply the same rates to all loans immediately as commercial banks’ mobilised interest rates were higher than that.

It is only possible if the SBV maintains the mobilised interest rates at 14 percent for several months, she stressed.

However, the 14 percent interest rate is much lower than the consumer price index and not on par with the increase in the exchange rates by the end of the year. Small depositors do not have many options, so they will continue to deposit their money in banks, but professional investors and commercial banks are predicted to move their money to other investment channels they think are safer.

The SBV’s decision to tighten the monetary policy and its financial policy is said to increase the interest rates. It is, therefore, necessary to loosen the monetary policy to avoid the vicious circle of inflation, she said.

Rol.vn - Source: VOV News

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