By Chien Thang - The Saigon Times Daily
HANOI – If inflation continues to be well restrained, the central bank will lower the ceiling deposit rate by one percentage point every quarter, proceeding to removal of the regulatory ceiling, said Governor Nguyen Van Binh of the State Bank of Vietnam (SBV).
The central bank on Monday held a press briefing to officially announce its decision to pull down the ceiling deposit rate from 14% to 13% a year.
Governor Binh said the fact that inflation continues the downtrend in the last eight months has created a solid foundation for interest rate cut. However, it is only the necessary condition, while the sufficient condition is the liquidity of the banking system.
After several years with hot credit growth, high capital use and shrinking short-term funds due to the credit tightening policy, liquidity has now improved. Both the necessary and sufficient conditions are satisfied, thus now is the right time to lower the deposit rate ceiling, said the governor.
He recalled when the deposit rate cap of 14% was regulated in the fourth quarter of 2011, the central bank committed the common lending rates for manufacturing and business would be 17-19%, which has actually come true. Therefore, as the ceiling deposit rate is lowered by one percentage point, lending rates would stand at 16-18% per annum.
Still, based on the general development of the economy and inflation expectation, the central bank predicted the annual lending rates will fluctuate at around 14.5-16.5% in the coming time.
“Such level is lower than that in the past but still out of reach of many enterprises. Therefore, for more interest rate cuts in the future, inflation curbing and macro-economic stabilization must be promoted further,” said Binh.
The central bank’s decision to slash deposit rate was announced right at the time of fuel price hike. Regarding this issue, Governor Binh cited the report of the Ministry of Finance, saying if fuels mark up 10%, the whole year’s inflation will rise by an additional 0.64%, which he considered not much.
The governor highlighted it doesn’t matter if inflation goes up in a month or a short term, but if inflation rises stably, interest rates will be adjusted up accordingly. However, he forecast the possibility of the latter case is low this year.
Starting from Tuesday, the refinancing interest rate is pulled down to 14% instead of 15% per annum. Overnight lending rate in inter-bank e-payment dwindles to 15% from the 16% a year.
The rediscount rate also goes down one percentage point to 12% per year. The maximum interest rate for non-term deposits is revised down to 6% from 5%, while the annual interest rate for deposits over one month is lowered to 13% at most, versus the previous level of 14%.