Interest rates on the Vietnamese dong are undergoing great upward pressure amid uncertainties in the global financial market and rising credit demand, said Bui Quoc Dung, director of the Monetary Policy Department under the State Bank of Vietnam (SBV).
At the end of February, lending rates were common at 6%-9% per year for short terms and hovered between 9% and 11%, down 0.2-0.5 percentage point from early 2015. The rates are half those at the end of 2011 and lower than those in the 2005-2006 period, he said.
“However, adverse developments in the international financial market, rising pressure on government bond sales and growing demand for medium- and long-term loans in 2016 are putting considerable pressures on interest rates,” Mr. Dung told the VnEconomy.vn newspaper.
He named three major factors that exert pressure on interest rates.
First, the country’s inflation is forecast to accelerate to 4%-5% this year from 0.6% in 2015, indicating much higher inflation expectations, which in turn pile pressure on deposit rates.
Second, credit demand is poised to growth as the country’s GDP growth rate target is set at 6.7%, above the rate of 6.68% in 2015 and an average of 5.88% in the 2011-2015 period.
Third, yields of five-year government bonds soared to nearly 7% per year in 2015 from 5.5% earlier, coupled with a higher issuance volume this year, will heavily weigh on medium- and long-term interest rates.
Mr. Dung tipped that the banking regulator would regulate liquidity properly and manage inter-bank rates in line with the tier-1 market to ensure cash injections for the economy.
He, therefore, was upbeat that medium- and long-term interest rates could be maintained steadily and lowered slightly this year.
Local banks have recently lifted rates of deposits longer than three years to 8% per year and above to meet corporate credit demands, raising concerns that lending rate will consequently increase.