SBV headquarters in Ha Noi. Experts expect a 0.5 percentage point benchmark rate cut. — Photo SBV
The State Bank of Viet Nam (SBV) will soon make a decision on cutting the benchmark interest rate to support the economy amid the COVID-19 outbreak, the bank’s Deputy Governor Dao Minh Tu revealed at a meeting on Thursday.
Viet Nam made the last benchmark rate cut by 0.25 percentage points in September 2019.
The reduction of the benchmark interest rate, which would help lower discount, refinancing and open-market-operation (OMO) rates, was a solution to help credit institutions with abundant liquidity, thus put them in a better position to support businesses amid the COVID-19 pandemic, Tu said.
Experts also proposed the Government to cut the benchmark policy rate as many businesses in affected industries and sectors were shrinking production or even closing their doors.
“A benchmark interest rate cut of some 0.5 percentage points should be made to provide a lower interest rate fund for commercial banks, who then can lend to struggling firms at better interest rates,” banking and financial expert Nguyen Tri Hieu suggested.
A lower interest rate was very important, especially under the current context when businesses were shrinking production or even closing their doors, and had no capital demands, Hieu noted.
Central banks of many other countries have so far also taken strong measures, attempting to contain the coronavirus’ economic fallout, Hieu said, citing the US Federal Reserve recently slashed its interest rates by half a percentage point, its biggest single cut and first emergency rate move in more than a decade since the depths of the 2008 financial crisis, as a pre-emptive move to protect the economy from the coronavirus.
At the meeting, Deputy Governor Tu said that the SBV has yet to consider adjusting the credit growth target because the Government has not adjusted macro-economic objectives. He noted that many banks have launched big credit packages with reduced interest rates to support enterprises and people affected by the epidemic.
According to Nguyen Quoc Hung, director of the SBV’s Credit Department, credit institutions have re-scheduled debt payment deadlines for loans worth VND21.75 trillion (US$940 million) and cut interest rates for loans worth VND185 trillion ($7.96 billion) for 34,350 customers.
Hung said credit growth was very slow due to the epidemic, at 0.1 per cent this year to March 4 compared to a 0.85 per cent increase in the same period last year. Preliminary reports of 23 credit institutions showed about VND926 trillion worth of loans (or 11.3 per cent of the total banking system’s outstanding loans) were affected by the COVID-19 outbreak.
He reported that the SBV had received appeals for help from business associations in transport, leather-footwear, cassava, coffee, and non-State education sectors. In response, the SBV has adopted such measures as debt rescheduling, waiver or lowering of the lending interest rates against existing loans under Circular 01/2020, which will take effect on March 13.
The SBV will continue to closely monitor the developments and impacts of the COVID-19 epidemic so as to take timely measures to support production and business activities, thus reducing losses caused by the epidemic. — VNS