A local bank employee counts money. They central bank on Tuesday slashes policy interest rates by 0.5 percentage point. — Photo tienphong.vn

HCM CITY ― The State Bank of Vietnam on Tuesday lowered the interest rate cap on bank deposits of up to six months by 1 percentage point to 6 per cent as part of efforts to boost credit growth.

It cut policy interest rates by 0.5 percentage points, and the refinancing ate now stands at 6.5 per cent, the discount rate at 4.5 per cent, and the overnight rate at 7.5 per cent.

"The cut is supported by factors including inflation being controlled (less than 6 per cent in February) and loan demand from both enterprises and individuals remaining modest," HSBC Vietnam's deputy general director, Pham Hong Hai, said.

"Mobilisation by commercial banks might reduce but there will be no significant changes," he said, though admitting that investors might now consider other asset classes.

There is little possibility that banks would compete to get deposits by flouting the rate cap because liquidity is abundant, he said, adding it would have no impact on foreign exchange rates either. The rate cap for US dollar deposits also went down by 0.25 per cent.

Nguyen Hung, general director of TPBank, too believed the cut would have no impact on deposits, saying banks were already offering low interest rates on short-term deposits.

Meanwhile, many people have changed their investing habit to deposit for longer terms to enjoy higher interest rates, he added.

Le Quang Trung, deputy general director of the Vietnam International Bank (VIB), said credit growth would benefit from the cut and the growth target of 12-14 per cent for this year is now feasible.

The Bank for Investment and Development of Vietnam (BIDV) on Tuesday announced deposit rates of 5 per cent for one month for individuals, and 5.5, 6.0, 6.5, and 7.5 per cent for two, three-five, six-to-11, and 12 months and above respectively.

The short-term lending rate may be fixed at a maximum of 8 per cent, with seven- to 12-month terms carrying a rate as low as 5.5 per cent, the bank said.

Other measures needed

Tuoi tre (Youth) newspaper quoted Dr Nguyen Son of the Institute of World Economics and Politics at the Vietnam Academy of Social Sciences as saying interest-rate cuts are not enough to boost the economy.

"The cut will encourage cash flow into business operations only if the economy is well restructured," he said.

If other solutions to stimulate economic development are not implemented effectively, the cash would find its ways into gold, property, and securities, which could create a bubble, he said.

He called for focusing on restructure of the State-owned enterprises and allowing real-estate companies to go bankrupt if needed.

He also suggested measures like tax cuts to boost consumption since taxes make up 26-27 per cent of the GDP against around 20 per cent on average for developing countries.

"The interest rate issue is no longer a matter of concern for enterprises, the focus is now on [market] demand," LienVietPostBank Vice Chairman Nguyen Duc Huong informed the Voice of Viet Nam (VOV). He suggested that public investments should be accelerated, and the stock market should offer more room to foreign investors in order to attract more capital for such investments.

A representative of Vietcombank Securities Company reported that while bad debts and the health of businesses remained the major decisive factors leading to limited credit growth, the lowered deposit interest rate cap is positive news, as the stock market is likely to see more capital inflows.

"This news will provide a positive push that can help the market to cross the psychological point of 600 during the next week," he noted. ― VNS