Sunday, August 19 2018


Deposit interest cap to be tightened in Q4

Update: August, 30/2012 - 10:09


Dr. Vu Dinh Anh
Though inflation increased again in August - earlier than expected after several months of decline - a further interest rate cut is still expected to help businesses currently facing economic difficulties. Deputy director of the Ministry of Finance's Market and Price Institute Dr. Vu Dinh Anh talked about the issue.

Is it feasible to have a further interest rate cut from now to the year end after the return of inflation?

We will still have a chance to cut the annual deposit interest rate to 8 per cent from the current rate of 9 per cent. However, the cut should be made right at the beginning of the fourth quarter. If the cut is ratified later in November or December, it will be difficult as the country's inflation often surges at the end of the year.

The cut will help lower the lending interest rate to 12-13 per cent. Although three-fourths of old loans currently enjoy an interest rate of 15 per cent following recommendations from the State Bank of Viet Nam, the rate imposed on new loans is still very high. Therefore, a further cut to the interest rate will be extremely important to save businesses in the context of the current difficulties.

Will the expected cut reduce deposits in banks?

We should not be too concerned about ensuring a positive real interest rate to attract depositors because in the current context, other investment channels also remain risky and are not more attractive than deposits. The cut to 8 per cent will not likely cause investors to flee as some people fear.

CPI last year surged 18.13 per cent from December 2010 while the ceiling deposit interest rate at the time was only 14 per cent. However, the country's total deposit mobilisation, especially from idle capital sources, was still very high.

How will inflation be this year if the cut is made?

According to the General Statistics Office, CPI in August surged 2.86 per cent from the end of last year. However, the rise is 10.41 per cent year-on-year. Therefore, the country's inflation rate is still high and it never showed signs of deflation as some were concerned it might two months ago.

Inflation surged again earlier than expected in August due to several recent hikes in the price of petrol. A month ago, I expected the consumer price index to increase again in September or October.

Inflation this year is tending to be the same as in 2008-09. After recording 28.3 per cent in August 2008, the country's CPI fell to 2 per cent in August 2009 and then recovered to 6.52 per cent at the end of 2009.

CPI this year also dropped to 6.9 per cent in June after hitting 23 per cent in August 2011. The decline continued until the end of the third quarter and will recover in the last quarter.

If what happened in 2008-09 happens this year, CPI rise this year will be roughly 8 per cent. So, if there is no major change between now and the end of the year, the Government's goal of limiting inflation to a single digit will be achieved. — VNS

Send Us Your Comments:

See also: