Experts believe the central bank is loosening its monetary policies to support businesses and boost economic growth. — Photo cotec.com.vn

HA NOI (Biz Hub) — Experts believe the central bank is loosening its monetary policies to support businesses and boost economic growth.

These reports started circulating following recent cuts in lending interest rates by large State-owned commercial banks, as required by the State Bank of Viet Nam.

According to Nguyen Duc Do, deputy head of the Financial Economic Institute at the Ministry of Finance, a loose monetary policy is urgently needed to lower interest rates because economic growth is slowing amidst low inflation and a stable exchange rate.

Do said if the interest rate did not drop, all businesses, the government and the economy would face difficulties.

Credit plays a key role in economic growth, Do said, estimating that credit must increase by 16-18 per cent this year to help GDP growth at 6.5-7 per cent. To meet the annual targets, further measures are needed to enhance capital sources for investment and development.

According to Do, a lending interest rate cut to support economic growth and reduce debts burdening the economy has been in the pipeline for the past few years, especially when inflation stood at below 2 per cent at the end of 2014. However, the cut was not applied at the time as the economy rebounded while the exchange rate was still sharply volatile last year.

However, the need for an interest rate reduction is now urgent as economic growth has shown signs of leveling off since the first quarter of this year.

Do said the central bank was likely to enforce a looser monetary policy, adding that commercial banks were increasingly buying up government bonds, signalling a reduction in the interest rate of G-bonds.

He was not concerned about the potential return of high inflation, explaining it would not occur if public debts and non-performing loans (NPLs) were not completely resolved.

In a recent report, analysts from HCM City Securities Co (HSC) also said the recent lending .interest rate cut by commercial banks reinforced the belief that the monetary policy was loosening and noted that this easing of the policy was an important component in the stimulus package proposed by the government.

According to HSC analysts, the loose monetary policy was necessary in the context of the limited State budget, which would make it difficult to use fiscal policies to stimulate economic growth.

Previously, Director of the Business Development Institute (BDI) Le Xuan Nghia said the central bank could loosen its monetary policy by reducing its compulsory reserves, stopping the issuance of central bank bills, strengthening the discounts on government bonds and special bonds (used to buy NPLs), promoting open market operations and maintaining inter-bank interest rates at low and stable levels.

State-owned commercial banks have recently cut lending interest rates by 0.5 percentage points for short-term loans. They have also adjusted the rates for medium- to long-term loans to no more than 10 per cent per year. The adjustments will apply to loans related to production and business activities.

Borrowers with feasible business plans or a healthy financial status can access loans at rates of only 5-6 per cent per year. — VNS