Adjustments in interest rates to affect the economy

A good signal to the market

SBV has officially reduced all the key interest rates since July 10^th, 2017. Accordingly, refinance rate, rediscount rate, overnight electronic interbank rate and rate of loans to offset capital shortage in clearance between the SBV and credit institutions decrease by 0.25% per year.

The maximum short-term interest rate for loans in VND provided by credit institutions reduces by 0.5 percentage, applicable to some sectors and industries.

Notably, this is the first time since March 2014 that SBV has cut official interest rates. These adjustments are expected to generate motivation for the market.

According to Dr. Can Van Luc, the decision of SBV generally aims at reducing costs for credit institutions, hence decreasing interest rate to support enterprises.

He said the reduction of official interest rates would definitely stimulate credit demand. To decrease interest rate as expected, SBV, as the lender of last resort, should also expand the scale of refinancing to stimulate credit supply. It would be a good signal to the economy.

Mr. Nguyen Van Duc, Vice President of Ho Chi Minh City Real Estate Association shared this view. He said, when the interest rate was decreased, house buyers would have more choices and benefit from lower prices.

According to financial expert Nguyen Tri Hieu, just a decrease of 0.5% in interest rates can exert a beneficial impact on the real estate market, especially in the end of the year. Besides, the decrease in the interest rate would attract investment capital to real estate.

Nothing much to expect

In reaction to the decision of SBV, Dr. Nguyen Duc Thanh, Director of Vietnam Institute for Economic and Policy Research said, a decrease in interest rate is a critical step to support enterprises.

“However, this should be closely monitored as it embraces many risks in the investment market. If the budget capital is disbursed faster at the end of the year, more pressure will be put on liquidity and interest rate. To stabilize the situation, SBV may have to add more means of payment. In the context of credit increasing faster than deposit, it may result in the higher risk of inflation in 2018,” Dr. Nguyen Duc Thanh said.

Additionally, Mr. Thanh warned about the hidden risks of erratic fluctuation in the market which currently seems to level off.

Moreover, Dr. Can Van Luc thought the adjustments in the interest rate of SBV only affect some certain sectors such as agricultural and rural development, exports, auxiliary industries,… Other sectors like real estate are expected to feel the effects later.