Narrow window of opportunity for interest rates to reverse.

When monetary leeway is limited, the role of fiscal policy becomes more prominent.

The pressure is increasing.

In an interview with the Investment Newspaper last week, Dr. Le Xuan Nghia, a member of the Prime Minister's Policy Advisory Council, stated that current interest rates are one of the most worrying obstacles to economic growth. If fuel prices rise sharply, inflation risks increasing significantly, making the issue of interest rates even more difficult to resolve.

Over the past weekend, crude oil and Brent crude prices fluctuated around $95-$101 per barrel. It is likely that this price range will continue to fluctuate next week. According to the baseline scenario presented by analysts at BIDV Securities Company (BSC), the conflict in Iran will last 4-6 weeks, with Brent crude prices fluctuating between $80-$100 per barrel. In that scenario, the US Federal Reserve (Fed) will delay interest rate cuts, the DXY index will rise slightly, pressure will increase on the exchange rate, Vietnam's inflation will increase by approximately 3.5-3.6% year-on-year, and pressure will be exerted to raise the policy interest rate by 0.25-0.5%.

In fact, deposit interest rates have been continuously increasing sharply from last year until now. Currently, lending interest rates for priority sectors are still maintained at low levels by many banks. Sharing with the Investment Newspaper, Mr. Nguyen Ngoc Chau, Director of Ngoc Chau Co., Ltd. (De Gi commune, Gia Lai province) said that the company is currently borrowing capital from Agribank at an interest rate of over 7% per year.

However, in other sectors, especially real estate, lending interest rates are rising. Currently, floating interest rates for home loans have reached 12-14% per year. Some banks have even temporarily suspended lending for new projects.

Mr. Nguyen Tuan Anh, Deputy General Director of the Housing and Urban Development Investment Corporation (HUD), stated that for homebuyers, current loan interest rates are a significant burden. An interest rate of around 12% per year is considered too high compared to the income of most people needing social housing. In a context where incomes have not increased proportionally to borrowing costs, many people face difficulties in stabilizing their lives and accessing housing.

Dr. Le Xuan Nghia also believes that current mortgage interest rates are beyond people's ability to bear. Once people no longer dare to spend money on buying houses, launching new projects will become difficult, thereby increasing financial pressure on developers.

Further interest rate reductions or credit expansion are unlikely. Faced with the risk of inflation and a rising exchange rate due to rising global oil prices, the State Bank of Vietnam is showing more caution in managing monetary policy.

Mr. Nguyen Le Nam, Deputy Director of the Monetary Policy Department of the State Bank of Vietnam, stated that the global context is putting significant pressure on the exchange rate and the domestic monetary market. He predicted that the global situation will continue to be complex in the coming period, creating many potential risks to global growth and inflation, thereby directly and negatively impacting Vietnam.

In particular, in the current context, inflationary pressure is increasing as world oil prices rise, leading to an increase in domestic gasoline prices. "In this context, steadfastly pursuing the goal of controlling inflation is absolutely essential to help anchor inflation expectations and strengthen the confidence of the people, businesses, and foreign investors in a stable macroeconomic environment, creating a foundation for production and business activities to serve economic growth," Mr. Nam stated.

According to Mr. Nam, practical experience from the world and Vietnam has shown that high economic growth is only truly meaningful and sustainable in a stable macroeconomic environment with well-controlled inflation. This will be a solid foundation for sustainable growth.

According to the Monetary Policy Department, in the coming period, the State Bank of Vietnam will manage credit in line with macroeconomic developments and the money market, contributing to controlling inflation, stabilizing the macroeconomy, and supporting sustainable economic growth.

Increasing the money supply to lower interest rates?

The State Bank of Vietnam (SBV) affirmed that rising oil prices due to the Middle East conflict are putting pressure on inflation in many countries. Major central banks around the world are becoming more cautious about lowering interest rates, with some central banks signaling the possibility of raising interest rates as early as March to control inflation. This puts significant pressure on domestic monetary policy management.

Nevertheless, economists believe that if interest rates continue to fluctuate at their current levels, coupled with market instability, businesses will be very cautious about expanding production and operations.

In this context, according to Dr. Le Xuan Nghia, the opportunity to lower interest rates still exists through increasing the money supply. To achieve this, the State Bank of Vietnam needs to increase the amount of money injected through the Open Market Operations (OMO) channel at low interest rates. Simply doing so would allow commercial banks facing liquidity shortages to seek funding in the open market instead of competing on deposit interest rates in the retail market.

Meanwhile, many economists argue that to bring interest rates down, it is necessary to reduce the pressure on the banking system to supply capital. Although there are many channels for raising capital, in reality, the economy still relies primarily on bank capital. Over the past period, credit growth has exceeded deposit growth, causing banks to face liquidity difficulties, forcing them to sharply increase deposit interest rates, which in turn leads to an increase in lending interest rates.

Dr. Nguyen Quoc Viet, an economic expert and lecturer at the University of Economics (Vietnam National University, Hanoi), believes that the capital structure needs to be changed, especially by increasing the proportion of medium and long-term capital sources. “Bank credit currently still accounts for a very large proportion. Therefore, there needs to be a shift in capital flows, gradually moving from relying primarily on bank loans to developing more robust capital market channels, such as the bond and stock markets,” said Dr. Viet.

Meanwhile, according to a representative from Vinasteel, businesses are eager to raise capital through the capital market, but stable policies are essential for this. Vinasteel recommends that state management agencies continue to maintain consistency in the development direction of the capital market, limiting sudden changes in legal regulations related to the issuance of securities, corporate bonds, and conditions for accessing medium- and long-term credit.

According to Vinasteel, corporate bonds are a highly promising fundraising channel for medium and large-sized manufacturing enterprises. However, after a period of significant correction in recent years, the market is still in the process of rebuilding investor confidence. In this context, Vinasteel recommends that regulatory authorities continue to improve the legal framework by enhancing information transparency, standardizing the credit rating system, and establishing clear and consistent information disclosure standards. This will create a reliable basis for investors to systematically quantify and assess risks. Simultaneously, the secondary market for corporate bonds should be gradually developed, thereby increasing liquidity and expanding portfolio management tools for investors.

"A stable and transparent bond market will play a crucial role in creating additional channels for medium and long-term capital for businesses, thereby reducing excessive dependence on bank credit," a business representative suggested.

Mr. Dao Minh Tu, former Standing Deputy Governor of the State Bank of Vietnam and member of the National Financial and Monetary Policy Advisory Council, believes that the management of monetary and credit policies must simultaneously ensure the safety of the national financial system, the safety of the commercial banking system, and the sufficient supply of capital for the economy.

Credit growth may be slower than the economy's capital needs. According to the law of supply and demand, at certain times, commercial banks are forced to adjust interest rates upwards to create balance in the capital market.

Mr. Tú believes that, besides credit, another important channel for businesses to raise capital is the capital market. In recent times, the government has made efforts to restore investor confidence, and the potential for development in this market remains significant.

However, to develop the capital and bond markets, it is necessary to "capitalize" assets to create more "goods" for the market. Of course, this is a complex problem. The important thing is that, in the context of limited capital resources, the speed of capital turnover needs to be increased.

With limited monetary leeway, close fiscal coordination is needed to support growth.

- Mr. Nguyen Le Nam, Deputy Director of the Monetary Policy Department, State Bank of Vietnam

In the coming period, the State Bank of Vietnam will manage credit in line with macroeconomic developments and the money market, contributing to controlling inflation, stabilizing the macroeconomy, and supporting sustainable economic growth. In addition, it will closely and synchronously coordinate monetary policy with fiscal policy, the money and credit markets, and the capital market in meeting the capital needs for economic development.

Currently, Vietnam's credit-to-GDP ratio has reached over 144%, the highest among lower-middle-income countries. The room for maneuver in monetary policy to support high economic growth is relatively limited.

In this context, coordinated fiscal and monetary policies are crucial. Specifically, fiscal policy needs to be substantially expanded, focused, and targeted, increasing the disbursement of public investment capital, having both direct and ripple effects, and driving other economic growth drivers.

Monetary policy continues to be proactive and flexible, in line with domestic and international market developments, prioritizing macroeconomic stability, inflation control, and preparing tools and measures to support economic growth under appropriate conditions.

In addition, it is also necessary to effectively utilize opportunities to attract foreign investment through the establishment of an international financial center and the opportunity to upgrade the Vietnamese stock market.