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Despite favorable conditions, interest rates have not decreased yet   2012-02-15 - VietNamNet

It is understandable why the State Bank has not eased the interest rates, though the current factors all support the interest rate reduction.

The instructions that have not come true

The Prime Minister in late 2011 instructed banks to ease the interest rates in order to revive the national economy and rescue a series of businesses which were on the verge of bankruptcy.

The Prime Minister emphasized that banks have no reason to refuse to ease interest rates, when the consumer price index CPI increased by no more than one percent a month in the last six consecutive months.

The banking system plays a very important role in the operation of businesses, because 50 percent of businesses’ capital comes from bank loans.

The latest happenings in the macro economy continue supporting the interest rate reductions. The CPI in the Tet month (January) was the lowest in the last many years. Meanwhile, the inflation rate in February is believed to be not high due to the low demand after Tet.

Experts also think that it is necessary to lower the interest rates now, because no business would survive with the sky high interest rates of 20-25 percent. Meanwhile, businesses say they can only bear the interest rate of no more than 10 percent per annum.

Even investors and people also wish to see the interest rates going down. The lower interest rates would allow them to buy houses, borrow money to run household’s business. Securities investors expect the interest rate reductions to preserve their stocks’ values.

The time for interest rate reduction remains ambiguous

Even commercial banks have also expressed their intention to slash interest rates. Some big banks have eased lending interest rates applied to some certain subjects.

Liquidity is no more a problem of banks. The unprofitability of other investment channels has helped banks attract more capital, because people cannot see any other safer investment channels that depositing. As such, if the central bank eases the interest rates now, this would not badly affect their operation.

The State Bank of Vietnam has also affirmed that the liquidity of the banking system has been improved much, even though the money pumped into circulation before Tet has been taken back.

The inflation has been curbed, the bank liquidity has been improved, and the interbank interest rates have decreased considerably (fixed term loans on the market have decreased to below 10 percent). All the needed factors exist. Why has the State Bank not taken a move of slashing deposit interest rates?

Meanwhile, economists have warned that if businesses cannot access bank loans, they would have to scale down the production. This would lead to the production stagnation, which would result in the lack of goods. If so, the high inflation would return.

Analysts have made wild guess about why the central bank has not ordered to slash interest rates yet. One of the reasons could be the bank restructuring.

The State Bank has many times emphasized that the restructuring process must follow the principle “throwing stone into mouse but not breaking vase”. i.e. that the restructuring process must go smoothly and cause no bad effects to the society and national economy.

However, the analysts say no need to worry about the restructuring. The successful merger of the three banks in late 2011 showed that the restructuring could go smoothly with no considerable bad effects.

Some other analysts thought that the bad debts and the low liquidity may lead to the fact that no healthy bank would accept weaker banks in the restructuring. However, the reason also proves to be unconvincing, because it would be more difficult to carry out the restructuring in these current circumstances.

The State Bank once stated that that it would only reconsider the interest rates by the end of the first quarter. Is this the main reason?

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