Vietnam Finds it Hard to Cut Interest Rates in 2016: Central Bank Chief

Tuan Minh

10:51 30/12/2015

BizLIVE - There is little room for interest rates in Vietnam to decline further as demand for credit remains high, said the governor of the central bank.

Vietnam Finds it Hard to Cut Interest Rates in 2016: Central Bank Chief

A front view of the State Bank of Vietnam's Headquarters. (Photo: Internet)

Interest rates in Vietnam are unlikely to drop further in 2016 as demand for funds will stay high and the State Bank of Vietnam (SBV) needs to balance efforts to keep the foreign exchange rate stable, said SBV Governor Nguyen Van Binh at an online conference on December 29.
The chief of the central bank noted that official data showed that Vietnam’s inflation was less than 1% in 2015 thanks to the plunge in global commodity prices, but could be as high as 3% if volatile factors are excluded. Meanwhile, inflation is targeted at 5% in the long term.
Government agencies also need to watch out inflation in 2016 as the room to bring down prices of essential goods is narrow, Mr. Binh said.
Pressures on interest rates have risen toward the year-end. Credit growth of the local banking system stayed around 18%, outpacing the 13% expansion of deposits in the same period.
To guarantee credit expansion, mobilization needs to grow parallel while banks have to allocate resources to buy government bonds, thus putting pressure on interest rates, the governor said.
The SBV will act to keep interest rates stable like in 2015 and strive to lower interest rates of medium and long terms by an additional 0.3-0.5 percentage point, Mr. Binh said.
He added that the banking authority needed to balance interest rates and the forex rate, which has also been under stress.
Normally interest rate hike is traded off against stable forex rate. However, the SBV has managed to keep interest rates steady to support economic growth and businesses, Mr. Binh noted.
The governor tipped that the SBV aims credit growth at 20% next year to ensure economic expansion of 6.7% and absorb a larger issuance volume of government bonds. The money supply is set to increase 16%-18%.
The National Financial Supervisory Commission has said in a report that interest rates will undergo considerable pressure which will come from: (i) higher inflation, (ii) stronger demand for credit by the private sector and rising government bond issuance, (iii) an uptrend of interest rates of the U.S. dollar in the international market, and (iv) local banks’ provisions for credit risks.
According to a SBV report, loan rates in the Vietnam dong have declined 0.3-0.5 percentage point during 2015 from the end of 2014, lowering rates by 50% in comparison with those at the end of 2014.
Deposit interest rates have slide 0.2-0.5 percentage point.
The SBV have lowered the cap on interest rates of USD-denominated deposits by corporate and individual depositors to zero, in a bid to tackle forex hoarding.