Is there still room to loosen monetary policy and lower interest rates?

Providing cheap loans to businesses is the right decision.

At the recent Government meeting, Prime Minister Pham Minh Chinh directed the need to focus on removing difficulties for businesses with the orientation of loosening monetary policy through increasing money supply (M2), increasing credit, reducing interest rates, especially lending rates.

Commenting and analyzing the above policy at the Seminar "Flexible management of monetary policy and growth targets in the new context", Mr. Dau Anh Tuan - Deputy General Secretary, Head of Legal Department, Vietnam Federation of Commerce and Industry (VCCI) - said that from the perspective of the business community, this is very suitable for current needs.

“I imagine this as if the fields are dry and the government is trying to create water sources to irrigate them. Because business activities need capital, capital for businesses is like growing crops needs water. When there is a lack of water, it is clear that agriculture cannot develop, just like businesses that lack capital will certainly encounter difficulties,” said Mr. Dau Anh Tuan.

Online seminar "Flexible management of monetary policy and growth targets in the new context". (Photo: VGP).

According to Mr. Tuan, in the whole year of 2022, capital flow for businesses will face many difficulties, first of all, capital flow from bonds is difficult. Meanwhile, other difficulties from the world market are coming such as: Decreased orders, many difficult business activities, businesses facing many difficulties, very high interest rates...

“In the recent period, interest rates were at several hundred percent, and for normal business activities, several hundred percent is difficult, let alone accumulation and development. Therefore, the current solution focuses on monetary policy in the direction of reducing interest rates and increasing money supply to facilitate businesses to borrow capital. In our opinion, this is a very appropriate and necessary policy.”

The State Bank has reduced the operating interest rate four times since the beginning of the year. In many meetings since the beginning of the year, the Prime Minister has continuously urged and sent out messages about trying to reduce the interest rate level.

Currently, for many export enterprises in many industries, having capital to quickly turn around the product line, promote production and business activities, expand premises, and expand business activities also requires capital. Therefore, Mr. Dau Anh Tuan believes that creating conditions for enterprises to access capital at reasonable and cheaper costs is a correct decision.

“If businesses cannot maintain operations and cannot grow, it will certainly affect economic growth - an important goal; it will certainly affect labor, employment, budget revenue, and in the long term, it will affect the existence of businesses,” Mr. Dau Anh Tuan analyzed.

The important thing is where the money goes.

The Prime Minister’s recent directives are considered timely and decisive in the country’s situation. The State Bank has also implemented these directives from strict and certain to flexible and perhaps even more drastic.

According to Mr. Phan Duc Hieu, Standing Member of the National Assembly's Economic Committee, the important issue here is the absorption when coordinating monetary policy with other policies. Current monetary and fiscal policies such as tax deferral and deferral are all to support businesses facing difficulties. However, if we do not coordinate with other policies such as VAT refunds, the effectiveness of the policy will be reduced. Policy coordination must take into account removing barriers and speeding up the settlement of administrative procedures.

Although inflation in our country has been well controlled in recent times, there are opinions that in the context of complicated developments and high inflationary pressure, loosening monetary policy will pose many risks to inflation control, as well as bad debt and system safety.

Regarding this opinion, economic expert Dr. Vo Tri Thanh - Director of the Institute for Research on Brand Development and Competition - said that macroeconomic stability is important, but the current context creates conditions for us to have policy shifts, both fiscal and monetary policies, which are basically aimed at supporting growth.

“Regarding monetary policy, there are still many different opinions on how much is enough. Regarding interest rates, I agree with the Government's target that interest rates can be reduced by 1-1.5 percentage points from now until the end of the year. Monetary policy can be loosened, but in terms of governance principles, we cannot allow "easy money". We still have room to lower interest rates, but there are several reasons for calculating a reduction of 1-1.5 percentage points,” Mr. Thanh said.

In addition, in any situation, the safety of the system must be ensured. In addition to liquidity, if money becomes easy, the goal of promoting growth and production and business may be affected when this cash flow does not flow into production and business. This is a challenge for the State Bank, so Circular 06 recently issued by the State Bank stipulates that commercial banks must closely monitor risks such as money flowing into the securities and real estate sectors.

“In my opinion, the inflation problem is not too big but two issues: where the money flows and the exchange rate. I would like to reaffirm that there is still room to loosen monetary policy and lower interest rates,” said Dr. Vo Tri Thanh.

Implementing the direction of the Government and the Prime Minister on assigning the State Bank to "research and propose a credit package of 10,000 billion VND to support enterprises in the forestry and seafood production and processing industry", the State Bank informed that the banking industry has allocated 15,000 billion VND with preferential interest rates for this sector. The implementation period is until June 30, 2024. The credit scale of the program is about 15,000 billion VND (higher than the expected package of 10,000 billion VND).

Borrowers are customers with projects and plans for production and business in the forestry and fishery sectors who will be able to borrow at an interest rate at least 1-2% lower per year than the average lending rate for the same term. To date, 12 commercial banks have registered to participate in the program.

Source