Analysts think how about the State Bank’s interest rate cut move?
VietReader 1-10-2020, 00:10

According to analysts, the decision to reduce a series of executive interest rates from October 1 does not have too much impact on the interest rate level as the current system liquidity is still abundant and the demand for credit is low.

Head office of the State Bank of Vietnam. (Photo: Quang Hung)

Research Department Bao Viet Securities Company (BVSC) has just released a report evaluating the latest decision of the State Bank to reduce the operating interest rate (SBV).

According to BVSC, from the beginning of the year until now, this is the third time the State Bank has decided to reduce the operating rate with a large margin of each reduction (0.5 percentage point). However, the real economic impact of the interest rate cuts later on is even more limited.

Explaining this statement, BVSC believes that the liquidity of the banking system from May to now has always been in a positive state, causing interbank interest rates to drop to a record low level so banks don’t have much demand demand for loans through OMO or re-extracting from the State Bank. This means that lowering lending rates through the above borrowing channels will not have too much effect in reducing interest rates further.

Meanwhile, for the ceiling interest rate for deposits less than 6 months, the actual deposit rates of commercial banks (commercial banks) on the market at these terms are also below 4% / year, which is below the level new ceiling issued by the State Bank. The decrease in short-term deposit rates at commercial banks was mainly due to the excess liquidity when credit growth was low (only 5.12% increase until September 22).

“In general, the State Bank’s decision to reduce the operating rate by 0.5 percentage points does not have too much impact on the current interest rate level in the market. This move largely reflects the efforts of accompanying, supporting the economy of the State Bank to boost GDP growth in the last quarter of the year “, BVSC said.

“Basically, in the current context, loosening monetary policy has a relatively limited impact on aggregate demand. Instead, fiscal policy should play a major role in stimulating the economy”, BVSC added.

Sharing the same viewpoint with BVSC, Ban Viet Securities (VCSC) said that the move to cut the operating rate is one of the State Bank’s measures to support businesses and the economy. However, in the context of excess liquidity of the banking system (interbank interest rates continue to be at a record low (0.14% / year) as of September 29) and credit demand is at a high level. This low rate cut probably won’t have much of an impact.

Previously, in the statement issued on the afternoon of September 30, the State Bank said it would reduce a series of operating interest rates from October 1.

Specifically, reducing the refinancing rate from 4.5% / year to 4.0% / year; rediscount interest rate from 3% / year to 2.5% / year; Overnight lending interest rate in interbank electronic payment and loans to offset capital shortage in clearing payment of the State Bank with banks from 5.5% / year to 5% / year.

Reducing the interest rate offered to buy valuable papers through the open market operation (OMO interest rate) from 3.0% / year to 2.5% / year.

Reducing maximum interest rates for deposits with terms from 1 to less than 6 months decreased from 4.25% / year to 4.0% / year; The maximum interest rate for 1 to less than 6 month term deposits at People’s Credit Funds, Microfinance Institutions decreased from 4.75% / year to 4.5% / year.

Meanwhile, the maximum interest rate for demand deposits and terms less than 1 month is kept at 0.2% / year and deposit rates with terms from 6 months or more will be charged by credit institutions.

In addition, the State Bank also reduces the maximum short-term lending interest rate in VND of credit institutions to borrowers to meet the capital needs to serve a number of economic sectors as prescribed in Circular No. 39/2016 / TT-NHNN dated 30/12/2016 from 5.0% / year to 4.5% / year; reducing the maximum short-term lending interest rate in VND of people’s credit funds and microfinance institutions for these capital needs down from 6.0% / year to 5.5% / year.

According to the State Bank, from the beginning of the year up to now, to implement the guidelines and directions of the National Assembly, the Government and the Prime Minister on the implementation of solutions and policies to remove difficulties for businesses and people, ensuring safety. In response to the COVID-19 epidemic, the SBV has synchronously operated monetary policy tools to control inflation, stabilize the macro-economy, the money market and reduce the market interest rate and support economic growth recovery.

Economic growth in the first 9 months of 2020 reached 2.12%, inflation was controlled, an average of 3.85% in 9 months, in order to continue solving difficulties for the economy, the State Bank decided to adjust the levels.

Source: – Translated by