Commenting on the interest rate cut by the State Bank of Vietnam (SBV), Lawyer Bui Quang Tin, CEO of Bizlight Business School, lecturer at Banking University of HCM City, said that the impact of the policy on businesses needs more delay.
On March 16, SBV reduced a series of regulated interest rates, officially taking effect from today. Accordingly, interest rates such as refinancing and overnight rates decreased by one percent per year, rediscount rates by 0.5%. However, the basic rates only decreased slightly: the deposit rate cap down from 0.25 percent to 0.3 percent per year, the short-term rate ceiling with priority fields decreased by 0.5%.
According to Bui Quang Tin, this interest rate adjustment by SBV is quick, in line with the basic interest rate adjustment of many central banks around the world. Earlier, in the morning of March 16, Vietnam timezone, the Fed lowered the interest rate by one percentage point, bringing the USD interest rate level to 0-0.25 percent per year. The reduction of rates by SBV will support banking systems and businesses with better access to cheap capital.
“It can be said that this level of rate cuts by SBV is quite correlated with other macroeconomic indicators such as inflation and exchange rate. Specifically, in the first two months, the average inflation increased by 5.91%, four percent higher than expected for the whole year. SBV reduced the regulated interest rate to the current level, which was in line with inflation, the current exchange rate as well as other macro balance indicators,” Tin said.
Although lowering interest rates will have a positive impact on businesses, Bui Quang Tin said that this impact was in medium and long term. Specifically, reducing rates only affected new loans. Meanwhile, the capital demand of enterprises was currently weak, due to the stagnation of business, many businesses were sitting idle waiting for opportunities, especially for the government’s stimulus package, and for the epidemic to be under control. With regard to old loan contracts, it was difficult for enterprises to be supported by banks if they could not prove to be seriously damaged by Covid 19.
Deposit rates have begun to decline, but this expert said that deposits were still one of the most optimal investment channels today.
“Pouring money into stocks at this time is very risky, investors still need to wait for the trend. Real estate investment channel is illiquid, lending interest rates for this sector are still high. Market of goods and other investment, up to 70 percent are trying to cope through this pandemic. If interest rates are still higher than expected inflation of four percent this year, savings rates will still create a certain level of income for people. Currently, long-term mobilising interest rate is 7-8 percent per year, if minus four percent inflation, people will still benefit. Even if the interest rates for one month to less than six month term decreased to 4.75%, people would have a certain surplus. In other words, saving is still a safe and effective investment channel at this time”, Bui Quang Tin said.
