VINACHEM

By fighting dollarisation and reining in the forex market, the nation may see lower lending interest rates by mid-year, said Dr Tran Hoang Ngan of the National Monetary and Financial Advisory Council in an interview with Dau Tu (Vietnam Investment Review).

What do you think about the State Bank of Viet Nam's recent decision to increase the rediscount rate and refinancing rate to 12 per cent?

Increasing the current rediscount interest rate from 7 per cent to 12 per cent per annum and the refinancing rate also to 12 per cent is seen as a correct step for the central bank. It is in line with the objective of Government Resolution 11 related to inflation constraints and stabilisation of the economy and social security. The State Bank's moves are also in conformity with its purpose.

In principle, commercial banks must find ways to raise capital by themselves to do their business. They will seek support from the central bank in case of an emergency. So the rediscount rate and refinancing rate have to increase to a level suitable to the market's fluctuations.

This action aims to prevent commercial banks from taking advantage of the central bank's capital sources to pump money into the economy and earn profits.

Additionally, the central bank's adjustments on the rediscount and refinancing rates also reflect the money market's common interest rate.

It is said that interest rates of loans and deposits will likely fall early in the third quarter. What do you think about this?

The State Bank should use the basic inflation rate to set interest rates. Many countries are using the basic inflation rate to regulate their interest rates, while the consumer price index (CPI) is used as a base for adjusting salaries as well as creating master plans.

I also think that when we control the unpredicted changes of the US dollar, fight dollarisation, and monitor the black foreign-exchange market, the central bank will have opportunities to cut the interest rates of Vietnamese dong.

If we seriously implement all the above, we will create positive influences on the dong interest rates, so they would drop in June.

On the other hand, the issue of SBV's Circular 02 on the interest rate cap of 14 per cent also created a legal framework for the central bank to reorganise the market and stabilise the interest rate.

Many banks say it is difficult to mobilise capital with the capped-deposit interest rate. What is your opinion?

The fact shows that not all banks want to raise deposit rates because, if the rate goes up, their input costs would increase at a time when banks are having difficulties in lending.

Worse still, if the banks raised money with high interest rates, they would have to apply correlative lending interest rates to avoid losses. This would increase credit risks for the banks due to bad debts. So, I advise the banks not to engage in a race to raise capital at high rates. — VNS