Taming CPI, key to cut interest rates: Analyst

Consumer price index (CPI) must be tamed in order to cut interest rates, the local analysts said.

Consumer price index (CPI) must be tamed in order to cut interest rates, the local analysts said.

Lending Interest Rates Are Unaffordable For Local Enterprises

Nguyen Thanh Tuan Kiet, CEO of Ho Chi Minh-based Viet Cuong Machinery Joint Stock Company revealed that different added-on fees are included in the loan contracts, costing the company up to 16% of interest rates, much higher than target 12 % that Vietnam government is struggling to achieve.

The local state-run VnEconmy cited a case that a bank in Hanoi has adjusted lending interest rates charged to a private enterprise three times over the past year from 10.5% p.a. to up to 17.7% p.a. now without specifying the reasons.

Worse still, an official of a bank said lending interest rates for consumption loans even reached 19% p.a.

Curbing Inflation

Vu Dinh Anh, a senior economist said curbing inflation will be the key to pull down interest rate because “inflation is the fetus of interest rates” at any time.

CPI quickened to 1.31% on month in September and 8.64% on year in the first nine months partly driven by dong devaluation. After the move, dollar prices have hit VND19,710 on September 30 on the black market.

If dollar prices are kept stable, cost of borrowing the greenback will be lower than borrowing the dong, helping to ease the dong demand and reduce dong lending interest rates, said a banker.

CPI may hike on weaker dong as other Asian currencies are advancing against the greenback, they are stronger than the dong too, making imported products from these markets more expensive, or leading to imported inflation. Vietnam trade deficit mostly comes from its trade with China.

On September 27, the State Bank of Vietnam had the final decision on Circular 13’s adjustments, in which local banks will be allowed to include 25% non-term deposits by enterprises, deposits from the State Treasury and above 3-month borrowings from other lenders as their commercial funds.

Circular 13’s amendments are likely to help cool down the stubborn high interest rates as the changes allow bankers more fundable capital to lend into the economy on year-end high demand season, said Duong Thu Huong, Vietnam Bank Association’s General Secretary. – Stoxplus.com

Tags: vietnam bank, Vietnam finance, Vietnam financial, Vietnam interest rates