Interest rates for short-term and medium-term dong deposits are listed at 3.5- 6.2 percent per year in Vietnam. (Photo: vtv.vn)In a lettersent to the Prime Minister, the Ministry of Finance, the State Bank of Vietnam(SBV), the Ministry of Planning and Investment, and the Party Central Committee’sEconomic Commission, VAFI said currently, many global and regional countrieslist deposit interest rates at zero percent per year.
Somecountries are even maintaining negative deposit interest rates to ensure anextremely low lending rate of only 2-5 percent to promote the developmentof the business system and the stock market besides helping low and middle-incomepeople buy houses and spend on necessary consumption to ensure social security.
Other ASEANcountries such as Thailand, Philippines, Malaysia and Singapore also listinterest rates of 0 percent per year for short-term local currency deposits and0.2-0.7 percent per year for long-term deposits.
In Vietnam,interest rates for short-term and medium-term VND deposits are at 3.5-6.2 percentper year, very high compared to the above countries. The high deposit rateslead to high lending rates as a domino effect, causing a great disadvantage forthe domestic business community and a large number of low- and middle-incomeconsumers.
VAFIattributed the high interest rates to a lack of solutions to direct savings andidle cash to flow into investment channels that aid the economy instead of thereal estate and foreign currency markets.
According toVAFI, Vietnam has many advantages, such as political stability, high-speedeconomic development, double-digit export growth and a large amount of remittances,to enable it to quickly lower the deposit interest rate to 0 percent.
Based onsuch advantages, to gradually lower the deposit interest rate to 0 percent,VAFI proposed that the Ministry of Finance urgently map out the Law on PropertyTax that is expected to limit speculative cash flowing into the real estatemarket.
At the sametime, to control and stop land prices from increasing, it is necessary to applyprogressive property tax for second homes onwards. The tax can be low at first,but enough to prevent speculative cash flows, and then gradually increase tohigh rates like other countries.
According toVAFI, the measures are a prerequisite for quickly lowering deposit interestrates.
Besides, theGovernment should direct idle cash to flow into the bond market with lowmobilising interest rates at less than 2 percent per year. The banking systemtherefore will be able to mobilise huge and long-term capital, which will helpit offer medium and long-term loans with low interest rates of below 5 percent.
In addition,when deposit interest rates drop sharply, to prevent some of the idle cashfrom flowing into foreign currency speculation, the central bank should issue apolicy on paying fees for foreign currency deposits at banks to ensure astable exchange rate policy and macroeconomic balance.
However,banking expert Can Van Luc told VietnamNews it was not feasible to lower the deposit interest rate to 0 percentin Vietnam.
Luc said itwas irrational to compare interest rates of Vietnam with other countries as Vietnamis rated a higher risk by international credit rating agencies such as Standard& Poor's (S&P) than other countries.
The higherrisk a country is exposed to, the higher interest rate it has to offsetthat risk, he said.
According toS&P, Vietnam ranks BB while Indonesia and Philippines are BBB;Thailand, BBB ; Malaysia, A-; China, A ; South Korea, AA; and Singapore, AAA.
In addition,Vietnam's inflation is much higher than those countries so the deposit interestrate must be higher than the inflation rate to lure depositors. Vietnam'sconsumer price index last year was 3.2 percent compared with 2 percent for theworld, 2.5 percent for China and 1 percent of ASEAN 4. This year, Vietnam'sinflation forecast is likely to be around 3.5 percent, while the rate of theworld is expected at around 2.8 percent; China, 1.8 percent and ASEAN 4, around2 percent.
Assuming Vietnamcould lower the deposit interest rate to 0 percent while the inflation is stillaround 3.5 percent, local people would not deposit their idle money in banks,but pour it into other more attractive investment channels, causing the bankingsystem to suffer liquidity risks and fail to meet the credit needs of theeconomy, Luc said./.
VNA
