Vietnam's central bank issued rules on Wednesday that free up short-term lending rates from a cap, a move to rationalize rates that a former official says could see them ultimately fall.
The State Bank of Vietnam earlier this year allowed the rates that commercial banks charge for medium- and long-term loans to be "negotiable", freeing them from a cap of 1.5 times the policy base rate, which now stands at 8 percent.
That decision saw lending interest rates leap as high as 20 percent in some cases. The real rise for borrowers was not so dramatic because banks collected fees and made other charges to create an effective rate of around 15 percent, economists said.
The central bank has taken steps in recent weeks, including injections of cash into the financial system through open market operations, to bring rates down because businesses were reportedly unwilling to borrow at such high levels.
The central bank's view is lending rates should be around 14 percent and it has said state-run commercial banks were already offering rates below that level.
The new circular, effective from Wednesday, did not mention short-, medium- or long-term loans by name, but a central bank official said by telephone it applied to all, showing that short-term rates were also now being freed from the cap.
Cao Sy Kiem, a former central bank governor and member of the National Advisory Council for Monetary Policy, which advises the government, said the circular was another step toward lowering and liberalizing rates.
"The market might see lending rates edge up at first, because banks now can offer loans at negotiable rates, but they will ease then fall after some time, because the banks will have to compete to get more borrowers," Kiem said.
"The central bank should continue to use its open market operations and refinancing activities for some time to help banks manage their liquidity after lowering lending rates."
Economists have said Vietnam should consider raising the base rate to signal to markets that authorities are dealing with potential economic problems, like inflation and the trade deficit, and to help restore confidence in the dong.
A cap on deposit rates of 10.5 percent remains in place, and Dragon Capital, a Vietnam-based investment fund, said in a report it has been useful in keeping people and businesses from disruptive switching between dong, dollars and gold.
Lenders have argued that the deposit rate ceiling made it harder to attract deposits.
On Wednesday, however, the newspaper Lao Dong quoted central bank Governor Nguyen Van Giau as saying deposits as of April 9 had grown 4.18 percent from the end of last year, exceeding lending growth in the same period of 3.84 percent.
POST YOUR COMMENT
City & Country
Phone Number
We will not publish
your email or full address on our website, or give them to a third party.
Tags:
Vietnews is not responsible
for the content of external Internet sites.