Lower interest rates: Help reduce pressure to repay debts

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Deposit interest rates at many banks have decreased. Source: Internet

"Release" capital flow

According to the SBV, since2016, the operating interest rates have been reduced by 2-2.5%/year, decreasing from 0.8-1.5%/year to the ceiling interest rate for terms below six months and 2.5%/year ceiling lending interest rate for priority sectors.

In particular, under the impact of the Covid-19 pandemic, in 2020 alone, the State Bank has adjusted and simultaneously reduced the operating interest rates ata relatively strong scale. As a result, compared to other countries in the region, Vietnam's reduction in executive interest rates is currently one of the strongest. Specifically, China decreased by 0.3%, Malaysia decreased by 1.25%, Thailand decreased by 0.75%, Indonesia decreased by 1%, and India decreased by 1.15%.

The SBV said that, along with synchronous solutions to support the economy, the sharp reduction of the central bank's operating interest rates contributed to solving difficulties and supporting economic recovery.

According to Standing Deputy Governor of the SBV Dao Minh Tu, the issue of support through lowering interest rates, including new loans or old loans, will create conditions for businesses to access capital more easily. Therefore, lowering interest rates is a basic and important solution for extended credit.

In fact, the wave of lowering deposit rates at commercial banks has been going strong since the beginning of September, leading to a drop in lending interest rates and a series of preferential credit packages to support businesses and citizens.

In addition, the SBV also decided to postpone short-term capital for medium and long-term loans by a year so that banks will not be under pressure to restructure their capital sources, in the context that commercial banks have had to support businesses with liquidity difficulties through reducing lending interest rates, rescheduling debts and restructuring debts.

These can be said to be very necessary moves when many comment that the Government and management agencies need other drastic policies and solutions to support the economy. Many countries have issued very strong solutions to loosen monetary policies to increase capital flows and save the economy in the context of a pandemic.

Help to reduce pressure to repay

Although the market received positive news before the decisions of the SBV to lower interest rates, the actual impact on the whole economy was not as great as expected.

Research Department - Bao Viet Securities Company (BVSC) said that the SBV's decision to lower the operating rate largely reflects the SBV's efforts to accompany and support the economy to boost GDP growth in the last quarter of the year. Because now, for the ceiling interest rate for deposits less than six months, the actual deposit rates of commercial banks in the market at these terms are now below 4%/year, which is below the new ceiling issued by SBV.

Moreover, according to the analysis of the KB Securities Company (KBSV) experts, the deposit interest rate is low and in a downward trend stemming from two reasons. The first is that the liquidity in the system remains redundant when the supply is abundant, while the demand side has not shown many signs of prosperity (until September 30, 2020, credit increases by 6.09% compared to the end of the year. In 2019, the same period last year increased 9.4%). Second, the pressure to lower deposit rates to maintain the appropriate marginal interest rate (NIM) in the context of banks having to cut lending rates to support affected customers amid the pandemic.

It can be seen that the decrease in interest rates on the market comes from a small decision of the SBV. Not to mention, the decision of the SBV to reduce interest rates for the third time this year is not too surprising, but in line with the trend of cutting interest rates of many central banks around the world in the face of global economic decline.

Pham TheAnh, Head of Macroeconomics Department, National Economics University, said the monetary expansion mainly helps to create confidence, reduce debt obligations and stabilize financial stability, and is less likely to restore domestic demand. Interest rates are not a barrier to borrowing, so the move to lower interest rates, although not helping credit growth, will help reduce the pressure to pay off debt.

According to experts, in general, the monetary policies to deal with Covid-19 by the SBV mainly use resources from commercial banks, so the impact on the money supply is not great compared with tools that pump money directly through bond purchases by other central banks.

Therefore, finance - banking expert Dr. Can Van Luc said that interest rates in Vietnam must be at a high ratecompared to the international and regional level due to high value added tax (VAT) of Vietnam, high corporate risk rating BB - rating for speculation, the interest rate of 5-7% is reasonable.

Furthermore, input interest rates must remain attractive to attract capital sources for the banking system. Therefore, supporting the economy through interest rates needs to be selective.Moreover, the more effective fiscal policy in preventing the decline of the economy, so it is necessary to promote more solutions to disbursement of public investment will help stimulate spending andinvestment demand.