Vietnam PM Asks Central Bank to Do Away with Ceiling Interest Rates

Vietnamese Prime Minister has recently asked the State Bank of Vietnam (SBV) to abolish the ceiling VND savings interest rates and to let the rates be driven by market forces, the state-run Vietnam Financial Times newspaper said April 18.

 

It is among measures set by the government to tame double-digit inflation, which is negatively impacting the country’s macroeconomy, the newspaper cited SBV as saying.

 

As interest rates were lowered, depositors could not enjoy real profit on their deposits and decided to withdraw their money from banks to invest in other channels instead. Compulsory reserves will thus decrease, which proves to be bad for the central bank’s management of the monetary market, local analysts said.

 

Meanwhile, General Secretary of Vietnam Bankers’ Association Duong Thu Huong expressed her concerns that the move will ignite a new interest rate war. Deposit interest rates may rise to 15 per cent a year, higher than the highest peak seen in the February race, she added.

 

Higher deposit interest rates will push borrowing costs, which will help banks cover their soaring costs, Huong noted, adding that VNBA members have pledged to not remove ceiling interest rates agreed at 11 per cent for VND deposits and 6 per cent for U.S. dollar deposits some weeks earlier.

 

The Saigon Commercial JS Bank (SCB) has recently broken the agreement by launching a promotion program on its bill issuance with the attractive interest rate of 12 per cent per annum and attractive gifts.

 

SCB bills issuance, however, was stopped as it violated the regulations. (Vietnam Financial Times)