Business

Interest rate under pressure to stay steady

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.
Interest rate under pressure to stay steady ảnh 1Illustrative image (Source: VNA)
Hanoi (VNA) - The State Bank of Vietnam hastargeted keeping interest rate stable in 2017, however, the market’sdevelopments in the first half of January 2017 show that lending rates aresuffering from many pressures.

Analysts say the goal to stabilise interest rates this yearmay face many challenges, such as the recovery trend of commodity prices in theworld market, including petroleum; the price adjustment of essentialcommodities of electricity, health service and education; and the risks ofclimate change and natural disaster.

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

Tin said the US dollar was forecast to continue strengtheningdue to the expectation that Fed would continue increasing interest rates thisyear and in 2018 and 2019. This trend would make it difficult for localcommercial banks to reduce interest rates because at that time, the exchangerate between the US dollar and other currencies, including the VND, would hike.

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

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

Prime Minister Nguyen Xuan Phuc also admitted interest ratewas a serious problem for the central bank in 2017, especially in the contextthat inflation must be curbed and the macro economy must be stabilised. Thecountry this year is targeting a GDP growth of 6.7 percent and inflation atsome four percent.

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

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

Economist Ngo Tri Long recommended the governmentcontinuously regulate prices of petroleum, electricity and public servicesaccording to the market mechanism with the State’s management.

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