Hanoi (VNA)🍸 – The State Bank of Vietnam (SBV) has just cut policy interest rates by 0.5 percentage point, creating a basis for lending interest rates to continue to decrease. However, according to experts, the cut is just a necessary yet sufficient condition to boost economic growth.

According to the SBV, although risks remain from the world economic slowdown, global inflation is forecast to have peaked and started to cool down. Domestically, inflation also slowed down. Meanwhile, liquidity is abundant and the exchange rate is stable. Those are the foundations for the central bank to adjust policies flexibly. Do Bao Ngoc, Deputy General Director of the Vietnam Construction Securities Joint Stock Company, said that the interest rate reduction is quite suitable for the current situation. When interest rates decrease, the exchange rates will also drop, which will support export activities. Bao said that the current lending interest ratess are still high, so with the drastic reduction in policy and deposit rates, lending rates are expected to fall in the next few months, laying stronger support for the economy. Dr. Vo Tri Thanh, a member of the National Financial and Monetary Policy Advisory Council also assessed that the SBV's move is appropriate to the domestic and international situations. The recovery of the global economy is uncertain, inflation has decreased slowly and has passed its peak, risks to the banking system arise in some major countries and the risk of economic recession has caused many central banks to slow down interest rate hikes. Meanwhile,  the US Federal Reserve (FED) signaled that it might stop raising interest rates after a hike on May 2. In Vietnam, in the first four months of the year, some indicators representing economic growth increased lower than in the same period. Some organisations forecast the country’s GDP growth in 2023 at 5.8-6.8%. Inflation slowed down in the four months due to weak aggregate demand and slowing economic growth, while domestic prices of petrol and raw materials fell in line with world price trends. Over the same period, inflation decreased from 4.89% in January to 2.81% in April, averaging 3.84% in the first four months. Core inflation also went down from 5.21% in January to 4.56% in April, averaging 4.9% in the four-month period. International organisations forecast Vietnam’s average inflation in 2023 at around 3%-5.5%. The SBV did not cut down the ceiling lending interest rates for priority sectors. However, it reduced the ceiling rates for deposits from one to under six months for the second time in a row. According to experts, the SBV’s move shows important signals to the market about interest rate trends in the coming time. Commercial banks will also have to adjust deposits of other terms.  Reduced deposit interest rates will have an important meaning in reducing the input capital costs of commercial banks, from which there is a basis to lower the output interest rates or the lending interest rates. Despite the positive assessment of the central bank’s policy interest rate cut, experts from ACB Securities Company (ACBS) held that this is only a necessary condition to boost Vietnam's economic growth. Specifically, production and consumption are two important fields in the Vietnamese economy, both of which are currently facing a slowdown. Therefore, people will not need to borrow to spend more and businesses also do not intend to get loans to expand production activities. Therefore, a reduction in interest rates may not have much of an impact if demand for production and consumption will not increase. As Vietnam's manufacturing industry is mainly dependent on major trading partners such as the US, the European Union (EU), Japan, and the Republic of Korea,  Vietnam has to wait for the consumption demand recovery of the major trading partners. Economic expert Tran Hoang Ngan also said that interest rates need to be further lowered because businesses don't need to borrow due to the disruption in orders. Ngan suggested Vietnam should have both short-term and long-term solutions so that the economy does not decline anymore, because if Vietnam's economy grows below 4%, unemployment will increase. Experts expect Vietnamese economy will see bright spots in the third quarter because the production indexes of developed countries such as the US or the European region are showing signs of recovery, contributing to the recovery of credit growth. In the coming time, lending interest rates will continue to decrease, facilitating enterprises’ earier access to capital, and unleasing credit flows./.