A local bank employee counts money. Total credit contracted 1.66 per cent in the first two months of this year. — Photo baodientu.chinhphu.vn

HA NOI (Biz Hub) ― Lowering interest rates to support production and business activities will be one of State Bank of Viet Nam's priorities this year, according to Monetary Policy Department Director Nguyen Thi Hong.

Making these remarks during an interview with VnEconomy, Hong added that interest rates were declining as the banking system experienced redundant liquidity after the Tet (Lunar New Year) holidays. Many banks had cut deposit rates by 0.3-0.5 percentage points for deposits with one-to-two month tenures and by 0.1 percentage point for deposits with longer terms.

"This is an important premise for banks to reduce lending rates," she said. She remarked that the SBV would continue to ask lending institutions to adjust lending rates for existing loans to fall below a cap of 13 per cent.

The central bank will also urge lenders to slash the preferential rate applied to the VND30 trillion (US$1.43 billion) property bailout package by 1 percentage point to 5 per cent, following an SBV decision issued in January, she noted.

"Interest rates for loans in both the Vietnamese dong and the US dollar are now stable and reasonable. Many banks have offered lending rates for dong loans at below 6 per cent, even lower than [the popular] deposit rates," she said.

SBV Governor Nguyen Van Binh reported at a government meeting, on February 28, that the central bank had released VND150 trillion ($7.1 billion) in January, and this decision has helped ensure liquidity as well as add $4 billion to the nation's foreign exchange reserve.

However, while the official target for lending growth in 2013 was 12-14 per cent, total credit contracted 1.66 per cent in the first two months of the year.

Hong said the decline was normal during the Tet season, evident from the experience in the past few years, and positive developments in the macro-economy will support monetary policies.

She also remarked that brighter global prospects will benefit exports, while domestic conditions improve this year. Capital disbursement from foreign direct investment had increased 6.7 per cent, the total retail of goods and services had grown 6.2 per cent year-over-year and the consumer price index had expanded moderately by 1.24 per cent in the first two months.

The central bank has urged lenders to design schemes to ensure credit growth reached its target and has also asked fragile banks to implement their restructuring plans, she said. ― VNS