Illustration photo - Source: Internet

It is time to lower bank interest rates by 1 percent, confirms Nguyen Van Binh, governor of the State Bank of Vietnam.

The open market operation, refinancing, and overnight rates will all be reduced by 1 percent, Binh said at a press briefing in Hanoi on March 6.

The ceiling interest rate will also be slashed by 1 percent for credit organisations, the bank governor announced.

A decision to lower the interest rates will be announced by the central bank in the coming days, said Binh.

He also revealed that the deposit interest rate will be adjusted down by 1 percent on a quarterly basis if anti-inflation measures pay off.

The move is considered a necessary step toward easing the difficulties businesses face in accessing bank loans to revamp production.

However, there is growing concern that by lowering the bank rates, Vietnam may be loosening its monetary policy too swiftly, exerting pressure on anti-inflation efforts.

“We have made the decision after taking into consideration all possibilities, noting that the liquidity of the banking system has improved considerably,” said Binh.

“Yet, the central bank will continue implementing measures to control the supply of capital to ensure credit organisations have capital to lend to businesses.”

According to Binh, under the upcoming refinancing program, credit maturity terms will be adjusted to enable credit organisations to have a sufficient supply of capital for businesses.

The governor also added that the foreign exchange rate remains stable, and that the central bank is buying a large amount of foreign currencies to balance the market and increase the national foreign currency reserve.

Vietnam’s foreign currency reserve rose 50 percent in 2011, and an additional 20 percent in the last two months.

“With these positive signs, we are certain that the liquidity of credit organisations will continue to improve in the coming months,” said Binh.

He pointed out that some credit organizations have run up high bad debts due to their poor performance. However, they account for less than10 percent of the whole banking system or just 6 percent of the domestic banking sector.

To help them iron out their snags, the central bank will issue treasury bills in different terms - one month, three months, six months or 12 months - to stabilize interest rates and mobilize redundant sources of money from credit organisations to control inflation and reduce pressure on the foreign currency market, he said./.