The Covid-19 pandemic became increasingly complicated, causing difficulties for production and business activities of enterprises due to broken supply chains and a sharp decline in global demand.
In this context, the State Bank of Vietnam (SBV) has cut operating interest rates twice with a reduction of up to 1-1.5 percent per year; cut ceiling deposit interest rates and short-term loans in dong to create conditions for banks to reduce lending rates, supportting the business community and the economy to response to the negative effects of the pandemic.
Simultaneously, SBV also issued Circular 01/2020/TT-NHNN allowing banks to restructure repayment date; exempting interest rates and fees, keeping debt groups for customers who face difficulties because of Covid-19 epidemic.
According to SBV, as of July 13, 2020, Credit institutions (CIs) restructured the repayment term for more than 272 thousand customers with outstanding loans of 210 trillion dong; exempted, reduced, and lowered interest rates for more than 435 thousand customers with outstanding loans of 1.27 quadrillion dong; preferential interest rate for new loans with cumulative sales since January 23 reaching more than 1.17 quadrillion dong for more than 247 thousand customers; interest rates were 0.5 to 2.5 percent lower than standard compared to the period before the pandemic.
The aforementioned monetary solutions, along with fiscal measures to support such as extension, tax exemption, reduction, etc… helped many businesses overcome difficulties and withstand the COVID-19 outbreak. As a result, the economy still maintained the growth rate of 1.81 percent in the first six months of this year. Although this is the lowest growth rate in the past 10 years, compared to the region and the world, Vietnam is still one of the few countries with positive growth.
The economic outlook for the last months of this year is expected to be brighter after nearly 100 days without new cases of Covid-19 infections. However, the desease suddenly become complicated again. Within a few days, dozens of new Covid-19 infections have occurred in the community and in many localities. That will affect the recovery of businesses and national economy.
Therefore, a number of experts expect SBV will continue to cut operating interest rates to support businesses and national economy to overcome newly emerging difficulties. In fact, even there is no new cases of community-acquired infection, various organisations have forecasted that SBV will continue to cut interest rates in the last months of the year to support the economic recovery.
“We evaluate that there is still a possibility that SBV will lower the interest rates once again in the context that inflation may cool down in the second half of this year”, KBSV Securities Company said.
When the pandemic suddenly comes back, the requirement to cut further operating interest rates becomes even more urgent, especially when inflation is on the decreasing trend. According to the General Statistical Office, although the consumer price index (CPI) in July increased by 0.4 percent compared to the previous month. However, in the first seven months, CPI still dropped by 0.19%, the lowest in the period of 2016-2020. In particular, the average CPI continued to fall to 4.07 percent in July from 4.19 percent in June and approached the target of four percent set by the government.
Moreover, according to experts, the reduction of operating interest rates does not mean loosening monetary policy, so it does not have much impact on inflation. In fact, in the recent years, SBV rarely used interest rate instrument but mainly operated through open market operations to regulate money supply and credit limit instruments.
“SBV still has room to lower interest rates, but this will depend on inflation movements. If inflation can be kept below three percent this year, there is a chance for a reduction in interest rates,” Nguyen Tri Hieu financial expert said.
