Headquarters of the State Bank of Vietnam (SBV) in Hà Nội. The SBV will consider and decide the policy interest rate issue, based on the conditions of inflation, supporting growth and exchange rate relations. — Photo sbv.gov.vn

The State Bank of Vietnam (SBV) may find it difficult to reduce the policy interest rate in 2024 as it must consider many factors related to economic growth and inflation, experts believe.

SBV Deputy Governor Đào Minh Tú has said the SBV has so far left open any policy interest rate decision. It hasn’t so far decided whether to maintain the interest rate, as currently, or reduce it to support the economy.

"We will consider and decide the issue in the coming time, based on the conditions of ensuring inflation, supporting growth and exchange rate relations,” Tú said.

Meanwhile, despite the US Federal Reserve (Fed)'s interest rate cut, Singapore-based United Overseas Bank (UOB)’s analysts continue to expect the central bank to maintain its key policy rates for the rest of 2024, with an eye on potential price pressure risks.

The SBV is likely to adopt a more targeted approach to support impacted individuals and businesses in specific regions, rather than implementing a broad, nationwide tool such as interest rate cut, the analysts said in a recent report.

“Consequently, we anticipate the SBV maintaining its refinancing rate at the current 4.50 per cent while focusing on facilitating loan growth and other support measures,” they wrote.

Economist Nguyễn Xuân Thành, a lecturer at the Fulbright School of Public Policy and Management, judged that Việt Nam has a lot of room to maintain a low interest rate policy, mainly due to the Fed’s interest rate cut by 0.5 percentage point and the Fed’s trend of reversing monetary policy. By 2025, the Fed is expected to lower interest rates by another 1-1.25 percentage points, so the pressure on the domestic exchange rate is not too great.

More importantly, Thành said, some Asian central banks have also reduced their interest rates, which leaves room for Việt Nam to manage the policy in the direction of reducing interest rates.

However, Thành noted, in terms of the impact on domestic enterprises, it is difficult for the SBV to reduce the rate in the fourth quarter of this year.

Thành explained that in 2024, the Government is completely confident that it can achieve a credit growth rate of 15 per cent. However, the money supply increase is lower, only rising by 12 per cent compared to the same period last year.

Therefore, Thành said, if the central bank is not able to increase the money supply, interest rates will tend to increase further, not decrease.

Sharing the same view, Trần Ngọc Báu, general director of financial market research company WiGroup, said that management agencies are focusing too much on credit growth, but the capital rising growth and money supply are very low compared to credit that creates risks.

Báu said commercial banks currently are not able to reduce interest rates in the context of a rapid credit growth and a low capital rising, putting pressure on capital costs.

However, Báu believes that in 2025, Việt Nam will have a lot of room for easing monetary policies when inflation and exchange rates ease. Regardless of whether the US has a hard or soft landing, the global trend is for easing rates and Việt Nam will benefit from the trend, he noted.

Meanwhile, Dr Phạm Thế Anh, head of the Faculty of Economics under the National Economics University, said that the current interest rate is reasonable for the general situation, so the SBV should not lower the policy interest rate in the near future.

Domestic interest rates depends not only on the Fed, but also on many other factors, including the national inflation rate. Qualitatively, Việt Nam’s exchange rate will be more stable if the country is not in a hurry to lower interest rates, Anh said.

Sharing the same position, Dr Nguyễn Hữu Huân said that the possibility of a SBV interest rate cut is difficult and even if the rate is reduced, it will only be psychological move and will not have much impact on the market, because the current interest rate level is already low and the interest rate is not a key issue for credit growth. In reality, people, who need to borrow cannot access bank loans because they do not meet the loan conditions, any barrier is not related to the interest rate.

Therefore, Huân said, the SBV does not need to reduce the policy interest rate. Instead of the rate cut, the Government should focus on fiscal policy to further stimulate the economy. — VNS