State Bank gives reasons for cutting interest rates for the fourth consecutive time

After the decision to reduce interest rates for the fourth time since the afternoon of June 16, the State Bank of Vietnam has just issued a press release.

The State Bank of Vietnam said that the world economic growth continues to slow down and face difficulties. Some economies are falling into recession. Slow inflation makes the direction of monetary policy management. The roadmap for raising interest rates of central banks is more unpredictable.

On June 15, the Fed announced that it would keep interest rates unchanged at 5-5.25%/year but signaled that it could continue to tighten this year. The market predicts that the Fed will likely raise interest rates 1-2 times in 2023.

The People's Bank of China (PBoC) cut both the 7-day reverse repo rate and the long-term lending rate by 10 basis points, marking the first rate cut by the PBoC since August 2022.

Domestically, in the first 5 months of 2023, many economic indicators increased lower than the same period last year, reflecting the negative impact of sharply declining foreign demand and internal difficulties of the economy.

*The State Bank of Vietnam has reduced its operating interest rate for the fourth consecutive time. (Photo: Hoang Ha).*

Some organizations forecast GDP growth in 2023 at 5.7-7.2%. Meanwhile, inflation and core inflation continued to slow down in the first 5 months of 2023 due to low economic growth, reducing demand-pull inflationary pressure.

Compared to the same period, inflation decreased from 4.89% in January to 2.43% in May. The average for the first 5 months of 2023 was 3.55%.

Core inflation decreased from 5.21% in January to 4.54% in May, with an average of 4.83% in the first five months of 2023. Many forecasts indicate that the possibility of achieving the average inflation target of about 4.5% for the whole year of 2023 is relatively feasible. International organizations forecast average inflation in 2023 at about 3%-5.5%.

Meanwhile, the monetary market is stable, the liquidity of the credit institution system is abundant and redundant, promptly meeting the payment and disbursement needs of the economy. The foreign exchange market is stable, liquidity is smooth, and legitimate foreign exchange needs are fully met.

Since the beginning of 2023, the State Bank has purchased a large amount of foreign currency to supplement foreign exchange reserves, contributing to circulating a large amount of VND. The above solutions have contributed to creating abundant liquidity in the market. Thereby stabilizing and reducing the interbank market interest rate level, supporting credit institutions to reduce deposit interest rates and reduce lending interest rates for the economy.

Since the beginning of 2023, the State Bank has adjusted the operating interest rates down 4 times with a total reduction of 0.5-2.0%/year. At the same time, the State Bank has directed credit institutions to thoroughly cut costs to reduce lending interest rates to support businesses, people and the economy to recover production and business.

The State Bank's continued adjustment of operating interest rates is considered a flexible solution, suitable to current market conditions, to achieve the goal of reducing lending interest rates to support the economic growth recovery process.

At the same time, the adjustment to reduce the ceiling interest rate on VND deposits for terms from 1 to less than 6 months also helps credit institutions reduce input costs. This creates favorable conditions to continue reducing lending interest rates to support customers in reducing financial costs.

“The decision of the State Bank of Vietnam to reduce the ceiling interest rate for short-term loans in VND of credit institutions this time creates conditions for businesses and people to access low-cost loans to serve production and business in priority areas, key areas that are the driving force for economic growth in accordance with the Government 's policy,” the State Bank of Vietnam said.

The State Bank of Vietnam affirmed that it will not be subjective with inflationary pressure and will continue to closely monitor domestic and international developments, forecast inflation and market interest rates to continue directing credit institutions to have solutions to reduce costs to reduce lending interest rates to support businesses to recover and develop production and business.

On June 16, the State Bank issued three decisions related to interest rates at the same time.

Decision No. 1123/QD-NHNN on overnight lending interest rates in interbank electronic payments and lending to cover capital shortages in clearing payments of the State Bank of Vietnam to credit institutions reduced from 5.5%/year to 5%/year. The refinancing interest rate reduced from 5.0%/year to 4.5%/year; the rediscount interest rate reduced from 3.5%/year to 3.0%/year.

Decision No. 1124/QD-NHNN stipulates that the maximum interest rate applied to deposits with terms from 1 month to less than 6 months is reduced from 5%/year to 4.75%/year. In particular, the maximum interest rate for deposits in VND at People's Credit Funds and Microfinance Institutions is reduced from 5.5%/year to 5.25%/year.

Decision No. 1125/QD-NHNN stipulates that the maximum short-term lending interest rate in VND of credit institutions for borrowers to meet capital needs for a number of economic sectors and areas is reduced from 4.5%/year to 4%/year. In particular, the maximum short-term lending interest rate in VND of People's Credit Funds and Microfinance Institutions for these capital needs is reduced from 5.5%/year to 5%/year.

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