Saigon Investment held a talk with Dr. TRẦN DU LỊCH, a member of the National Financial and Monetary Policy Advisory Council, for further insight into this issue.
JOURNALIST: - Sir, high-interest rates have been a contentious issue since the second half of 2022 with no relief so far. What do you think when the State Bank of Vietnam continually lowers the operating interest rate?
Dr. TRẦN DU LỊCH: - Before discussing the current interest rate issue, let us look back from the period in mid-2022 until the end of the first quarter of 2023. Interest rates and monetary policy in general basically served the purpose of controlling inflation. At the same time, they helped in increasing the resilience of the national financial system in the context of the impact of the world financial market from rising inflation and price fluctuation of stronger currencies.
Since then, interest rates have remained high for a long time even when the economy needs to make a recovery. This has created a bottleneck for businesses to absorb capital. This situation gradually improved relatively until the end of the first quarter of 2023. But at present, the risk of inflation is still there but more dangerous is the fact that the world economy is showing strong signs of inflation. This is the general current background.
However, to better understand the situation of domestic interest rates, we have to look at the correlation between interest rates and inflation. We cannot compare Vietnam's interest rates with other countries in absolute numbers as high or low but must consider at this time how we compare inflation and interest rates. According to my observation, even the US and Europe do not have positive real interest rates, when comparing inflation and interest rates.
Particularly in Vietnam, by the end of the first quarter, the medium-term deposit interest rate of many commercial banks was up to more than 10 percent per year, and in terms of Consumer Price Index (CPI) around 3.5 percent to 4 percent, which was means that the real interest rate is positive at 7 percent or more. At the time of borrowing capital when the real interest rate is positive at 7 percent to 8 percent, then it is difficult for any enterprise to do business.
Therefore, in the management of monetary policy in the past time, the problem for the State Bank of Vietnam is how to both stabilize the macro-economy and control inflation while reducing interest rates. Up to now, the State Bank of Vietnam has made four adjustments to reduce the operating interest rate and to reduce interest rates. This means that the State Bank of Vietnam wants to loosen monetary policy, which is a good sign for the market.
- Sir, the State Bank of Vietnam has lowered the operating interest rate four times, but the commercial banks have not yet brought down the interest rate. Is it not influenced by the State Bank of Vietnam?
- We must recognize that interest rates are also related to supply and demand. Therefore, enterprises with good financial status are offered by banks at attractive interest rates. But there is an unavoidable problem, which is that the world and domestic economic situation is still very difficult, so some enterprises do not have the need to borrow capital to expand investment. For enterprises that have difficulty with capital and have a need to borrow, the current interest rates are quite high for them. Some businesses are not eligible to borrow, but regardless of the interest rate they are willing to borrow, but they are not the subjects of commercial banks.
The bank is said to lower the interest rate, but businesses could not access this. In fact, the procedure of commercial banks for loans is safe and in accordance with regulations, so in many cases, interest rates cannot be reduced. At the same time, although Circular 02/2023 of the State Bank of Vietnam allows rescheduling of debt repayment terms and maintaining the same debt group to support customers in difficulty, according to some businesses, the bank automatic system still changes debt groups and so they cannot access loans.
However, there is no denying the fact that commercial banks that mobilize high-interest rates for the long term have to wait until the end of this year or early next year to mature, so it is difficult to lower lending rates. Besides, the State Bank of Vietnam wants to reduce the general interest rate, but not all commercial banks have the required liquidity. Some banks are still in the process of restructuring as their health is not completely good, and there are banks that are still clinging to old corporate bonds. If they pull down the deposit interest rate for one year or more, they will not be able to keep customers or keep the money. So, they use all means of mobilization tools to maintain the necessary amount of liquidity.
- Sir, in your opinion which measures are reasonable in the current situation and what can fiscal policy now share with monetary policy to cope with the dismal growth trend of the economy today?
- From now until the end of the year, synchronous coordination between the two groups of fiscal and monetary policies will still be implemented. It is not possible to look at the monetary policy of the State Bank of Vietnam alone but must be put in a general context. The current fiscal policy also has a difficult point. To support monetary policy at this time, the only way is to quickly disburse public investment capital. If VND 700,000 bln of public investment capital can be disbursed this year, it will have a great effect on reducing the pressure on the credit system.
In the current uncertain world situation, relatively cautious steps from the beginning of the year by the State Bank of Vietnam were necessary. Such a step-by-step reduction in interest rates does not create a psychological shock, which means that while adjusting and looking at signs, the market should respond accordingly.
I highly appreciate Circular 02/2023 for freezing debts and not changing debt groups and Circular 03/2023 for amending regulations on corporate bond trading associated with the State Bank of Vietnam in its efforts to reduce interest rates. However, it is necessary to review the reflections raised by enterprises about whether the debt is still jumping in groups or not. Putting these two Circulars into practice along with efforts to reduce interest rates the bottleneck for capital absorption has been removed.
I think that if the State Bank of Vietnam lowers the refinancing interest rate and lowers the rediscount rate, it must be accompanied by the condition that it must expand the refinancing area. Otherwise, reducing operating interest rates will not work since refinancing requires project appraisal as most are large projects. The banks that are refinanced are large and they do not find it attractive. As for small banks that need capital, the State Bank of Vietnam cannot refinance. I think if we can do such things, we will be more stable from now until the end of the year.
- Thank you very much.
