The State Bank of Vietnam (SBV) has announced to reduce numerous interest rates to support the liquidity of the banking system from March 17th, in order to ease the Covid-19 difficulties for affected businesses. from March 17th,
Accordingly, the ceiling deposit interest rate falls by 0.25 percentage point for deposits of less than six months. Specifically, the ceiling deposit rate for deposits of less than one month is cut from 0.8 percent to 0.5 percent per annum. The maximum interest rate for deposits from one month to less than six months is cut from five percent to 4.75 percent per annum.
The SBV does not impose a ceiling on interest rates for deposit s of six months or more. These rates are self-decided by banks.
In addition, the operator also reduces refinancing interest rate from six percent to five percent per annum, rediscount interest rate from four percent to 3.5 percent per annum, overnight lending rate in inter-bank e-payment and lending to offset the capital shortage in the clearing payment of SBV for banks from seven percent to six percent per annum. Along with that, the interest rate of buying valuable papers through the Open Market Operation (OMO) is also lowered from four percent to 3.5 percent per annum.
The maximum short-term lending interest rate of banks to borrowers to meet the capital demand of a number of economic sectors and industries as prescribed in Circular 39 is cut from six to 5.5 percent per annum.
In addition, the compulsory reserve interest rate in dong of banks at the SBV is raised from 0.8 to one percent per annum. Some other interest rates are also adjusted, such as the rates for the State Treasury deposits, Deposit insurance at the SBV, etc.
The operator’s lowering of operating interest rates and deposit cap occurs in the context when a global wave of easing has been activated. According to Saigon Securities Incorporation (SSI) Research, only from the beginning of March, 20 countries have reduced operating interest rates by 0.25 to one percentage point, including the UK, Australia and Hong Kong.
In addition, credit packages with the total value of 285 trillion dong with interest rates of less than 0.5 two percent per annum are also being applied by commercial banks to customers affected by the Covid-19 epidemic. However, the absorption of this package will be limited because business activities are stagnant, according to SSI.
The credit growth in the first two months of 2020 was only 0.06%, the lowest level in the last six years. It means that only five trillion dong were disbursed in the past two months. Therefore, the SBV is still operating the monetary policy very cautiously, regulating the money supply strictly via the OMO.
In the world, governments are also easing their fiscal policy by increasing government spending and reducing/deferring tax payment to support the monetary policy. Singapore has announced a budget package worth 4.6 billion US dollars, Japan has provided an emergency package of 4.1 billion US dollars, the UK has approved a project to build a 106 billion British pound high-speed rail line. Meanwhile, China has announced a series of preferential tax policies for sectors affected by the epidemic, and the US government is proposing to reduce payroll tax to zero percent. South Korea has passed an additional budget package worth 9.8 billion US dollars, Malaysia has exempted personal income tax for tourism industry workers, etc.
