Hanoi (VNA)🍌 - The State Bank of Vietnam (SBV) has decided to reduce the regulatory interest rate by 0.3%-0.5% for the second time in less than a month. This is a positive signal for commercial banks to further reduce deposit rates and lending rates.

According to the SBV, the interest rate cut was due to the recent stability of the money market, the abundant liquidity of the credit institution system, and interbank interest rates falling rapidly and sharply. Meanwhile, experts assessed that the SBV’s interest rate cut is a strong move with a message that the monetary policy management agency is trying to open up more reasonable capital inflows to the market. Le Duy Binh, CEO of Econimica VietNam, said that the second regulatory interest rate cut is stronger than the previous one, reducing the deposit interest rate ceiling. “This shows that the SBV and the Government are signalling continued support for the economic recovery this year," he said. Hoang Cong Tuan, chief economist of MB Securities Joint Stock Company (MBS) said that SBV’s move is bold but reasonable in the context that the GDP growth in the first quarter of this year is at a relatively low level compared to many years. Another bank leader also admitted that lowering interest rates is essential because the rates are high, causing customers to hesitate in accessing capital, leading to slow credit growth. Therefore, when deposit interest rates decrease, capital-mobilising costs will also drop. Thus, banks will calculate to further reduce lending interest rates, and stimulate borrowers to access loans so that banks can expand output. KB Securities Vietnam Company (KBSV) also forecast that the deposit interest rate tends to decrease and can maintain a threshold of 7%, corresponding to the average lending interest rate of 10% (for the average 12-month term of State-owned banks). A representative from business said that in the second half of last year, his company almost ran out of cash, and had to sell some assets to maintain operations. Meanwhile, interest rates of long-term packages were at a high level. Therefore, an additional 0.5% reduction in interest rates can help businesses save hundreds of millions of VND. As inflation has cooled down, the exchange rate is being maintained at a relatively stable level. The SBV has also purchased foreign currency from credit institutions to supplement the State's foreign exchange reserves and increase the amount of foreign currency into circulation. Simultaneously, the agency's gradual easing of monetary policy, continuing to reduce operating interest rates is a flexible method to stimulate credit demand. Economic expert Can Van Luc said that reducing interest rates will stimulate credit demand, thereby helping businesses and people access more bank capital to put into production, business, and consumption. In the current context, this is an important boost for the economy, people, businesses, and banks. According to analysts, the reduced interest rates, boosted credit growth, and the recovery of some industries in the second quarter will help Vietnam to achieve a growth rate of 6.5% as the target set for this year. Experts believed that credit growth of only 2.46% by the end of March showed that the capital absorption capacity of the economy is still weak. Further lowering the regulatory interest rates is a flexible solution, in line with market conditions to realise the goal of recovering economic growth, easing difficulties for businesses and people. However, Luc warned about an inflation rise because currently, Vietnam's consumer price index is still high while there is a high possibility for inflation due to increasing prices of electricity, healthcare and education fees, and basic wages increase from July 1, and a large amount of money pumped into the market through public investment or crediting. In this regard, the SBV affirmed that it will continue to closely monitor domestic and international monetary developments, and forecast inflation and market interest rates to continue directing credit institutions toward solutions to stablise lending interest rates./.