In general, interest rate hikes to fight inflation will cause the economy to shrink or grow below its potential.

The latest money market report from Saigon Securities Incorporated (SSI) shows that interest rates on deposits charged to retail customers have been raised slightly in some small and medium banks. The interest rate on deposits charged to institutional customers increased by 0.2 percentage point in the major joint-stock banks.

With the exception of joint-stock banks where the state holds a majority stake, other banks have adjusted their interest rates on deposits by 0.3 to 0.5 percentage points compared to the end of 2021. At the same time, short-term interbank interest rates increased by 0.1 to 0.4 percentage point in May.

According to the State Bank of Vietnam (SBV), as of April 25, outstanding loans had increased by 6.75% compared to the end of 2021, while capital raised had increased by only 3.55%. This affects bank liquidity.

Meanwhile, there is pressure on inflation as oil prices and commodity prices rise sharply. For every 1% increase in the prices of materials, the prices of finished goods will increase by 2%, which will lead to higher inflation and put pressure on interest rates.

The US Federal Reserve (FED) has raised interest rates and is expected to continue raising interest rates to control inflation. This is another factor that is expected to impact Vietnamese dong interest rates.

The question is whether the State Bank of Vietnam (SBV) will change its monetary policy.

Economists believe that monetary policy will be adjusted in the second half.

“The demand for capital is increasing due to credit growth, especially in the last months of the year. This, together with pressure on inflation, makes it difficult to keep interest rates at historically low levels,” said Nguyen Tri Hieu, a financial and banking expert.

Tran Hoang Ngan, a respected economist, warned of high inflation this year.

He said Vietnam’s economy is very open, which means that when prices around the world go up, prices in Vietnam will go up immediately. This is called “imported inflation”.

The current global situation is complicated with rising prices – not only oil and gas prices, but also wheat, rice and fertilizer prices. In Vietnam, a liter of gasoline costs more than 30,000 VND. Price increases will be reflected in the Consumer Price Index (CPI) over the next few months and lead to interest rate hikes.

Solutions

According to the National Assembly’s Economics Committee, Resolution No. 43 asks the government to order commercial banks to reduce operating costs in order to reduce interest rates on loans from 0.5 to 1 percentage point in 2022-2023.

However, some commercial banks raise interest rates on deposits and loans.

Pham Nam Kim, an economist, claimed that the SBV and commercial banks will adjust interest rates in the coming times, and the question is how high the interest rate increases will be.

The anticipated rise in interest rates is worrying companies.

Nguyen Cong Quyet, owner of a private company in Hanoi’s Thuong Tin district that manufactures electrical appliances, said he borrowed capital from a bank in October 2021. The interest rate was 7.9% per annum during the first three months, and was increased. to 8.4% later.

The credit contract is about to expire and Quyet plans to sign another contract. However, he was warned that interest rates on six-month loans would be higher.

Nguyen Hoang Son, director of An Son Co Ltd in Hanoi, said interest rates on 12-month deposits charged by many banks are nearly 7% per annum, so banks lend at 10, 5-11% per year. If interest rates on deposits continue to rise, increases in interest rates on loans will be inevitable.

Meanwhile, the costs of inputs to production and business, including gasoline and raw materials, are rising. The burden on businesses will be heavier if interest rates also rise. Most businesses are financially exhausted after two years of Covid-19.

The central bank plans to launch a set of 2% subsidized interest rates. VNDirect estimates that the package will help reduce average lending interest rates by 0.2 to 0.4 percentage points in 2022. However, if banks increase lending interest rates, the actual influences of the package will be lower. provided that.

Tran Thuy