Recently, the State Bank of Vietnam (SBV) announced the lowering of a series of executive rates, becoming effective from March 17. Evaluating this decision, a financial expert, Nguyen Tri Hieu, shared that this was a correct decision of SBV at the moment. The type of executive rate that SBV had lowered was the interest rate on market two (interbank market) and some interest rates for market one such as capital mobilisation.
According to Hieu, lowering the interest rate of SBV certainly had a positive impact on the financial market. It made the cost of capital cheap, from which businesses could borrow money with lower interest rates. In general, these were appropriate measures at this time.
However, lowering interest rates like this could have a more substantial impact on market two when banks borrowed from each other, as well as from SBV. Since then, banks would have more liquidity, and in return, they could support their customers in market one.
Notably, market one was also affected, for example, the mobilising interest rate for loans declined from five percent to 4.75%. However, Hieu said that at this time, if SBV did not force banks to lower interest rates, banks would still lower deposit rates. Because current borrowing demand was deficient, banks were very abundant in liquidity. Moreover, if SBV did not flatter, other banks would also lower deposit rates to maintain their profit margins.
Talking about the impact of lowering interest rates, Nguyen Tri Hieu said that lowering interest rates could not help the economy overcome the crisis. Because the reduction of operating interest rates only affected the market. In the meantime, the problem of the global economy and Vietnam’s economy was not only in the monetary economy but also in the commodity economy, when the global supply chains were being disrupted, the supply together with the demand decreased, creating a spiral down to both supply and demand. Due to this fact, the monetary policy measures were only supportive.
According to Hieu, for example, in the United States, when the US Federal Reserve Bank reduced interest rates to nearly half zero percent, the stock market fell 12 percentage points, which was the most profound drop from 1988 to the present. This proved that monetary policies did not solve the global economy as well as the financial economy in general.
Also, in Vietnam today, the method of SBV was excellent and very positive. Still, it could not be based on only monetary policy but needed the hands of fiscal policies, such as tax reduction, defer taxes, even the government’s programme to support businesses with loan money or a mechanism to support money for struggling businesses like ‘credit guarantee fund.’ This fund would operate by the government injecting money into it, and this fund would guarantee companies to borrow money from banks. Through credit guarantee funds, enterprises facing liquidity difficulties could be directly supported. Besides, SBV might also have policies on tax reduction, tax exemption, instead of just supporting interest rates in the financial market. That was what should be done immediately, Hieu said.
On the other hand, this expert also said that the purpose of lowering interest rates was to support businesses, but the first or immediate benefit was still for commercial banks. Because banks could borrow cheap capital from refinancing, rediscounting, etc., which meant that they could borrow money from the competitive banking market. As for businesses, the mechanism was essential, also, interest rates on market one and market two did not connect. Because the interest rate on market one was the loan mobilising interest rate, only a few terms were adjusted. Six-month and above terms’ interest was still tacit agreement by banks and whether banks would reduce lending rates or not depended on the decision of each bank.
Sharing more on this issue, Hieu affirmed, lending interest rates would decrease but not due to monetary policy because the current demand for borrowing was deficient. Thus, the current measures would be aimed at the economy in general and the direct impact on commercial banks.
Further analysing the impact of lowering seven types of interest rates of SBV, Nguyen Tri Hieu also said that this would affect the overall interest rate level, and the interest rates in market two (the interbank market) would be most influenced, except for the interest rates mobilised with the people. While, for businesses, in the six-month term, there was a small decrease.
At the same time, the expert also said that the impact of the decision to lower seven types of interest rates would slightly delay. Because currently, at the time of the outbreak of disease, the economic sectors, the market segment would impact much more quickly. Therefore, it would not take much time, the market would soon be affected.
Finally, Hieu concluded, the current policy of lowering a series of interest rates of banks was good, but what businesses then needed was not only interest rates, but liquidity issues. At the same time, the problem of the economy not only the use of monetary policy but also fiscal policy to help businesses passing this period.
