Interest rate under pressure to stay steady

Hanoi (VNA) - The State Bank of Vietnam has targeted keeping interest rate stable in 2017, however, the market’s developments in the first half of January 2017 show that lending rates are suffering from many pressures.

Analysts say the goal to stabilise interest rates this year may face many challenges, such as the recovery trend of commodity prices in the world market, including petroleum; the price adjustment of essential commodities of electricity, health service and education; and the risks of climate change and natural disaster.

Besides this, economist Bui Quang Tin said the exchange rate would also put pressure on interest rates in 2017.

Tin said the US dollar was forecast to continue strengthening due to the expectation that Fed would continue increasing interest rates this year and in 2018 and 2019. This trend would make it difficult for local commercial banks to reduce interest rates because at that time, the exchange rate between the US dollar and other currencies, including the VND, would hike.

"If Vietnam lowers interest rates, it will make the US dollar/VN dong exchange rate increase, resulting in imported goods becoming expensive and making it difficult for businesses," he said.

In addition, the central bank’s regulation on reducing the ratio of using short-term capital for medium and long-term loans from 60 percent to 50 percent from January 1, 2017, would also affect deposit rates, especially terms that are more than 12 months.

Prime Minister Nguyen Xuan Phuc also admitted interest rate was a serious problem for the central bank in 2017, especially in the context that inflation must be curbed and the macro economy must be stabilised. The country this year is targeting a GDP growth of 6.7 percent and inflation at some four percent.

In a bid to stabilise interest rate and control inflation, Tin suggested the central bank adjust inter-bank rates reasonably through the open market operation (OMO). Commercial banks can borrow capital from the OMO market to stabilise liquidity and deposit interest rates.

Besides preparation to cope with the US’s Fed policy on increasing interest rates, measures to support commercial banks enhancing medium- and long-term capital sources must be also taken, Tin said.

Economist Ngo Tri Long recommended the government continuously regulate prices of petroleum, electricity and public services according to the market mechanism with the State’s management.

Any changes in the prices of such commodities and services must be considered carefully and taken at a suitable time to avoid strong negative impact on the price level, Long said.-VNA