Interest will be adjusted based on the market and each bank

Comparing interest rates at banks. Source: SSI

Maintain low interest rates

Based on reductions in operating interest rates in 2020 by three times, the SBV said it has continued to maintain low interest rates in the past six months.

According to Deputy Governor of SBV Dao Minh Tu, the State Bank was not subjective with inflation, but liquidity in the system was very abundant and the SBV would continue to maintain the current interest rate level. The view of the State Bank was managing the effects of the world economy and the inflation situation to manage interest rates and credit appropriately while increasing the amount of investment capital for the economy but still ensuring inflation control as planned.

Analysing specifically, Pham Thanh Ha, Director of the Monetary Policy Department (SBV), said recently, some commercial banks increased deposit rates, because they previously maintained interest rates at too low, so it has to be increased to fit the ground. Moreover, some banks still cut interest rates.

“Currently, deposit and lending interest rates continued to decrease compared to the end of 2020. However, the increase or decrease of interest rates depending on the market and also depending on the bank, not following the trend because bank liquidity was still stable,” Ha stated.

Therefore, the representative of the State Bank said they would continue to encourage commercial banks to reduce costs, if possible, and continue to reduce interest rates to support the economy and businesses.

Recently, the US Federal Reserve (Fed) floated the possibility of having two adjustments increasing interest rates in 2023. The Director of the Monetary Policy Department said the increase or decrease of interest rate of international central banks was normal following the economic cycle. Many countries have maintained the operating interest rate at zero to serve economic recovery after the pandemic.

However, according to Pham Thanh Ha, announcements about the possibility of raising interest rates by the Fed caused a reaction of market on the significant increase of the US dollar in recent times.

"The State Bank has experience in dealing with different price increases in the world, including interest rates, so the SBV would have an appropriate monetary management policy," Ha said.

Can still move up

According to experts from VnDirect Securities Company, the room for reducing interest rate in the near future is limited due to higher inflation pressure in the last six months of 2021 due to an increase of world crude oil prices. Besides that, the fever of real estate prices in some provinces and cities increased sharply in the first months of the year, which would make the SBV more cautious in loosening monetary policy.

The analysts expected savings rates would increase slightly by 25-30 basis points in the second half of 2021 due to the increase in credit demand amid a recovering economy and higher inflationary pressure in the second half of the year compared with the first six months. It is forecast to be at 3.5-4%.

Moreover, commercial banks need to maintain attractive deposit interest rates to mobilise capital in the context of higher competition from other investment channels like real estate and securities.

A recent report of SSI Research also stated deposit interest rates might increase in the last two quarters of 2021 because credit was expected to grow well. The representative of the State Bank also said it is considering extending the credit growth target for 10 commercial banks.

Dr.Nguyen Duc Do, Deputy Director of the Institute of Economics and Finance (Academy of Finance), said the movement of interest rates from now to the end of the year depended on many factors, especially the context of domestic and international economic recovery as well as inflation.

In addition, the interest rate situation also depends on the operating policy of the State Bank. In a difficult economic situation, heavily influenced by the Covid-19 pandemic, the SBV will not raise interest rates, but maintain the current interest rate policy until the end of the year.