With the interest rate cut, room loosening for banks, and refinance for large projects that are pervasive, the banking industry is offering a number of measures to contribute to stimulating economic growth, pushing the three pillars including investment, export and consumption forward.
In fact, the interest rate reduction waves spread from the beginning of July until now. Since the beginning of 2020, the State Bank of Vietnam (SBV) has cut interest rates twice, while state-owned commercial banks have reduced lending rates three times. Deposit interest rate has continuously dropped and there has been no sign to stop. It is likely that in the last six months of the year, there will be new interest rate cuts.
Not only reducing interest rates, the authorities and monetary market regulators have also found solutions to stimulate credit such as loosening credit growth limit for banks, considering refinancing for big projects, fully committing to provide capital for the economy.
It should be noted that, accepting the sacrifice of a part of profits, reducing deposit rates to support customers is a significant effort of credit institutions over the past time. But in the context that businesses have not been able to recover, the bank’s interest rate reduction is extremely necessary to help businesses have more motivation to borrow capital and restart production and business.
Credit growth of the whole system only increased by 2.8 percent in the first six months of this year, which partly reflects the apprehension of enterprises when borrowing from bank loans. To achieve the target of increasing credit at least 10 percent in 2020 as directed by the prime minister, the banking industry will have to make great efforts.
However, the slow credit growth is not only the responsibility of each banking industry. The monetary policy is not strong enough to boost these three pillars. Although banks have reduced interest rates, but in order for credit to grow, businesses must first have markets and demand for loans again. Thereby, banks dare to pour capital.
Clearly, credit is considered as a driving force for investment, exports and consumption. However, only when investment, export and consumption move, credit flows can circulate quickly and sharply. Thus, in order to solve this problem, the whole machine must move smoothly.
The first is the story of stimulating domestic consumption. In the first six months of this year, total retail sales of consumer goods and services decreased by 0.8 percent over the same period last year (if excluding the price reduction factor of 5.3%, the same period in 2019 increased by 8.5%), the stimulus is very necessary. However, in order for people to boost spending, the economy needs to create more jobs. Therefore, policies to promote public investment and increase domestic and foreign investment attraction are extremely important.
With the export market, the difficulties will be greater when most of Vietnam’s big markets are still suffering from severe losses due to pandemic, lowering interest rates and stimulating credit do not make much sense because businesses do not dare to borrow when these major markets close. Therefore, besides capital support, businesses need to promote the development of e-commerce, diversify the market to maximise the opportunities and benefits of signed Free Trade Agreements (FTAs).
Regarding public investment, although disbursement of localities has improved, it is still slow. In addition, financial support measures for businesses have been available (e.g. tax extension, tax reduction) but slow to carry out and have not met business expectations. The 16 trillion dong loan package with zero interest rate to support businesses in difficulties because Covid-19 could not be disbursed.
Naturally, with the current economy, monetary policy is one of the most important boost. However, as analysed, monetary policy needs a lot of other companions to join hands.
Promoting growth is one of the most important tasks today for the economy. To do this, monetary, investment and fiscal policies must coordinate in a smooth and flexible manner to stimulate aggregate demand. Naturally, the stimulation of economic growth must always be linked to the problem of macroeconomic stability, inflation control, and maintaining the confidence of foreign investors in Vietnam’s economy.
