Reducing operating interest rates creates positive sentiment for businesses

DNHN - The reduction in interest rates is manifestly "having a positive effect," indicating a State Bank policy reversal. Reducing interest rates generates optimism among businesspeople and investors

Dr. Can Van Luc, Chief Economist of BIDV, National Monetary, and Financial Policy Advisory Council Member.
Dr. Can Van Luc, Chief Economist of BIDV, National Monetary, and Financial Policy Advisory Council Member..

In the context of volatile financial markets, Dr. Can Van Luc, Chief Economist of BIDV and National Monetary and Financial Policy Advisory Council member, viewed the State Bank's interest rate reduction as a rather audacious move.

The State Bank of Vietnam has boldly "reversed" the policy by lowering interest rates, switching from a tightening policy to a more restrictive one, given that the global interest rate level is expected to increase until the end of the second quarter of 2024. Relax the monetary policy.

, enterprises (DN), thereby reviving economic growth amidst the challenging situation. In particular, this is a necessary adjustment given that enterprise statistics from the first two months of 2023 indicate that there are still numerous challenges. challenge.

Dr. Can Van Luc analyzed a variety of factors for the State Bank to use in calculating and lowering interest rates this time.

The first factor is that external pressure on interest rates has been gradually diminishing, and after the SVB Bank incident in the United States, many central banks (including the Federal Reserve) will be more cautious in raising interest rates.

Despite forecasts, the Fed is likely to raise interest rates marginally over the next term, essentially until the end of the second quarter of 2023, but then the upward momentum may stop, and the Fed may even consider reversing its policy from the second quarter of this year. 2024.

State-owned commercial banks simultaneously lowered interest rates (Photo: VGP/HT).
State-owned commercial banks simultaneously lowered interest rates (Photo: VGP/HT)..

Second, this action by the State Bank of Vietnam is consistent with the movements of the domestic market when the system's liquidity has improved over time and bank liquidity is abundant. Good liquidity is a prerequisite for some credit institutions (CIs) to actively reduce savings deposit interest rates and lending rates to implement government policy and State Bank directives.

Since February, although inflation is still high from a macro perspective, it has begun to decrease.

Mr. Can Van Luc stated that the reduction of certain types of operating interest rates enables financial institutions to continue reducing deposit rates. This is also the rationale for lending rate reductions by credit institutions. From there, support a portion of interest expenses, thereby helping to reduce the overall input costs of businesses, particularly those with significant debt and financial difficulties. However, businesses should also be aware that the SBV is focusing on reducing lending rates on VND short-term loans and directing credit to priority sectors. not all regions

Resolution No. 33/NQ-CP, dated 11 March 2023, was issued by the government to remove and promote the safe, healthy, and sustainable development of the real estate market... Within Government Resolution 33. The Government and the Government request to create conditions for businesses, homebuyers, and investors to quickly access credit sources; take appropriate handling measures for difficult real estate enterprises (such as rescheduling principal, interest, restructuring debt groups, etc.); focus on feasible projects and loan plans, customers with financial capacity, and the ability to repay debt in full and on time; and prioritize housing real estate projects that meet the real needs of the population. Beginning on March 15, the 12-month deposit interest rate for the four state-owned commercial banks VietinBank, Vietcombank, BIDV, and Agribank will be reduced to 7.2% from 7.4%. This is currently the lowest price on the market. In the previous week, all four banks decreased by 0.2% in terms of 6 months to less than 12 months, from 6% to 5.8% per month, compared to the end of February 2023; and from over 12 months to over 36 months, from 7.4% to 7.2%.

Alternatively, the reduction in deposit interest rates may have a minimal effect on savers. Even though the interest rate on savings deposits has decreased over time, Mr. Can Van Luc believes that people will continue to deposit funds because this is an attractive investment channel, especially compared to other investment channels that are not profitable. in the present context, simple.

Not only the effect of lowering interest rates but also the effect on psychology, according to expert Can Van Luc, which is a sign of a State Bank policy reversal.

"With the expectation that interest rates will continue to decline in the foreseeable future, including the short, medium, and long term, boosting the morale of individuals and businesses, investors are willing to invest more capital, thereby promoting production activities. production, business development ", Dr. Can Van Luc said.

Shortly, Dr. Can Van Luc made three recommendations for the most effective interest rate reduction policy.

First, on the macro level, although inflation began to decline at the beginning of February, it is still at a high level; the peak of inflation in the first quarter will not decline until the second quarter, so inflation should not be viewed subjectively.

Second, it is essential to continue coordinating a more active fiscal policy with monetary policy to take advantage of synergies. Since then, by the Prime Minister's directive, efforts have been focused on stabilizing and gradually reducing the level of interest rates to support economic growth while maintaining inflation control.

In addition, the government must continue to issue more stringent directives to improve business investment conditions, eliminate legal obstacles, and streamline administrative procedures, particularly in high-impact areas. Such as land, real estate (real estate), construction, and bidding, synchronous solutions exist to assist businesses in reducing difficulties and challenges in the future.

Previously, in the field of real estate, four state-owned commercial banks agreed to spend VND 120,000 billion on a credit package to fund the development of social housing for workers and low-income individuals. Compared to the average market lending rate of banks, satisfactory social housing projects can receive a lower interest rate of 1.5-2.0%.

Regarding this matter, Dr. Can Van Luc stated that the State Bank and the Ministry of Construction must soon coordinate to issue specific instructions, establish conditions for credit institutions to implement preferential commercial credit programs, and eliminate obstacles for real estate businesses to work together. Implementing the Government's Resolution 33/NQ-CP in a manner that meets the real needs of homebuyers, particularly in the social housing segment for workers and low-income people, is consistent with meeting their needs.

By: Government Journal

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