Supporting businesses - the goal of lowering interest rates
Commenting on the State Bank's move to lower operating interest rates in recent months, Dr. Nguyen Quoc Viet - Deputy Director of the Vietnam Institute for Economic and Policy Research (VEPR) said that the State Bank's monetary policies and operating moves are quite flexible and thorough in order to resolve bottlenecks and difficulties in accessing and increasing credit.
According to Mr. Viet, after 3 reductions in operating interest rates by the State Bank since the beginning of the year, there has been a partial impact on the reduction of mobilization interest rates and deposit interest rates of people and businesses.
Accordingly, a number of people and businesses have seen that if they invest in production and business activities, profits are still likely to be higher than continuing to deposit money in the commercial banking system or "hoarding" money in financial institutions.
Dr. Nguyen Quoc Viet - Deputy Director of the Vietnam Institute for Economic and Policy Research (VEPR).
“This is also a factor that causes production and business to recover. The evidence is that in April and May 2023, the rate of businesses withdrawing from the market has decreased and the number of businesses returning to the market has begun to increase,” Mr. Viet analyzed.
According to Associate Professor Dr. Dinh Trong Thinh - Senior Lecturer of the Academy of Finance, the reduction of operating interest rates is not beyond the previous goals of supporting businesses in the process of recovery and growth. This is the basic goal for the recent move to reduce operating interest rates.
“In addition, the purpose is to support and develop businesses, help businesses recover, thereby helping the economy develop better. Hopefully from now until the end of the year, the economy can grow better when interest rates decrease,” he said.
Need to increase money supply to reduce interest rates
However, according to experts, to reduce lending interest rates, many variables need to be addressed.
Mr. Viet cited a recent report from the VEPR Institute, saying that Vietnam's interest rate reduction was a bit slow compared to the actual situation. If we had done it earlier at the end of 2022, real lending interest rates would have been reduced faster.
“At present, we need more time to observe to confirm that the lending interest rate level will decrease. Because the spread from the reduction of operating interest rates to the lending interest rates of commercial banks needs to have a certain delay,” the Deputy Director of VEPR affirmed.
Reducing lending interest rates also depends on the bank's own standards such as classifying lending subjects to have appropriate lending policies and interest rates.
Therefore, Dr. Viet believes that banks - with their ability to conduct business autonomously - should decide when it is appropriate to reduce lending interest rates and the level of reduction for each lending subject.
Lowering the operating interest rate cannot bring abundant money to pump into the market because the current money supply growth is very tight, the money turnover is only 0.64 times/year. The State Bank should increase the money supply (print more money) to pump into the economy so that lending interest rates can be reduced.
Lowering interest rates is not a sufficient condition
Dr. Nguyen Quoc Viet also said that the decision to lower operating interest rates must be coordinated synchronously and smoothly with fiscal and monetary policies.
“Because if fiscal policy is still stuck when it cannot solve the problem of public investment, the money that has been arranged to be disbursed and put into the economy to restore growth will be stuck and cannot be used. This is also one of the factors that hinder the effectiveness of the State Bank's monetary policies,” he analyzed.
According to Mr. Viet, currently, many opinions say that the period of cheap money in the world has ended and in Vietnam, cheap money (money with low interest rates) cannot be easily mobilized, especially in the context of many variables, unknown risks from the macro perspective to risks related to financial and credit institutions and loans with high risk of bad debt such as in the bond sector.
"And finally, we need to stabilize the psychology and market confidence of both people and businesses so that domestic production and consumption activities can return to normal. Or we can break down barriers and open up new opportunities for export demand, then the economy will automatically return to normal, demand and credit growth will increase," Mr. Viet suggested.
The decision to lower operating interest rates must be effectively coordinated with fiscal and monetary policies.
ACB Securities Company (ACBS) believes that the State Bank's interest rate reduction is only a necessary condition, not a sufficient condition, to promote Vietnam's economic growth.
Specifically, production and consumption are two important sectors in the Vietnamese economy, and both sectors are currently facing a decline in activity. Therefore, people will not have the need to borrow to spend more and businesses also do not intend to borrow to expand production activities.
Therefore, reducing interest rates may not have much impact if there is no growth in demand for production and consumption. Our manufacturing industry is mainly dependent on major trading partners such as the US, EU, Japan and South Korea.
“Accordingly, we may have to wait for the recovery of consumer demand from those major trading partners. In addition, when the manufacturing industry recovers, Vietnam's domestic consumer demand will also recover. These impacts are sufficient conditions to boost Vietnam's growth in 2023,” ACBS commented .
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