Delegates attending the workshop on May 11 morning in Hanoi. (Photo: VNA) To contain soaring inflation, global central banks, including Vietnam,have tightened monetary policy since last year with numerous rate hikes.
And the policy really did tame the higher prices.
A recent report from the US Labour Department showed that consumerprice inflation increased 4.9% in the last 12 months, but it was the lowestlevel since April 2021. This marked the tenth consecutive month that inflationhas dropped from its peak last summer.
Meanwhile, in Vietnam, the consumer price index rose 2.81%year-on-year in April, but fell by 0.34% over the previous month.
However, higher interest rates will also greatly affect productionand business activities.
The interest rates of many banks remain high, with many listingthe rates at 12-13%, Nguyen Tu Anh, Director of the Department of GeneralEconomic Affairs at the Party Central Committee's Economic Commission, said atthe workshop on "Impact of High Interest Rates on Macro-economic Stabilityand Growth Recovery in 2023" on May 11.
Interest rates were at high levels from July 2022 to February2023.
"And with average interest rates of 9-10.7%, which arealready really high, the competitiveness of Vietnamese enterprises iseroded," Anh added.
In China, the weighted average interest rate was 4.14% in December2022 and only 5.62% during December in the 2008-2022 period. Notably, since theoutbreak of COVID-19, interest rates in China have continuously decreased,helping Chinese businesses recover strongly post-pandemic.
Therefore, when compared to their Chinese counterparts’competitive edges, Vietnamese enterprises mostly have none, Anh said.
"Chinese firms have advantages in domestic supply chains thatno other country has, an efficient and extremely competitive logistics systemand a higher level of technology than Vietnamese companies. And now ourenterprises have to bear interest expenses nearly three times higher thanChinese enterprises," the economist said.
The high interest rate environment also affects the need to starta business, he warned. High interest rates will make start-up costs soar,discouraging those who want to start-up.
"Vietnam currently has about 900,000 operating businesses,according to data from the General Department of Taxation, while the number ofsmall, medium, and micro enterprises in Thailand is 3.2 million enterprises,and the population of Thailand is only 72% of Vietnam," said Anh.
"The target of having one million enterprises operating in2020 was not reached, and with the current interest rate environment, thetarget of having 1.5 million operating enterprises by 2025 is almost impossibleto achieve."
Room for another rate cut
From 2011 to 2020, Vietnam mainly posted a current accountsurplus, meaning that it was a capital exporter.
Even though the current account was negative in 2021 and 2022 dueto the cost of importing drugs and equipment to prevent the pandemic, as wellas skyrocketing transportation costs, in the long-term, Vietnam will still be acapital exporter. Thereby, the country completely has room to reduce interestrates, Anh said.
At the event, Can Van Luc, BIDV Chief Economist, also said thatthere is still room for another interest cut this year.
“Interest rates are still high this year because in 2022 the moneysupply was low while many credit institutions are weak. However, if we canreconcile the policy, we will still have rooms to reduce interest rates, maybe,in the second quarter of 2023,” Luc said./.
VNA
