In keeping up with the macroeconomic developments, the international financial markets and mitigating the difficulties for production and business, on March 17, 2020, the State Bank of Vietnam (SBV) started to reduce the operating interest rates, the caps of interest rates for both deposits and short-term lendings by 0.25 percentage points p.a. to 1 percentage point p.a. To disseminate more information on this move, Mr. Pham Thanh Ha – Director General of the SBV Monetary Policy Department, has granted the press an interview about the recent interest rate reductions. Below is the full text of the interview.
Mr. Pham Thanh Ha – Director General of the SBV Monetary Policy Department
Correspondent: Could you please tell us how the banking sector has been complying with the policy of the Party and the Government, and joining hands to share the difficulties with the businesses and the people, contributing to support the economy and minimize the impacts of the Covid-19 epidemic?
Mr. Pham Thanh Ha: Right after the outbreak of the Covid-19 epidemic, the Party and the Government issued prompt directions and identified priority measures to fight against the epidemic, as well as to mitigate the difficulties for the economy, and direct the Ministries and agencies to come up with appropriate management and response solutions. For the banking sector, the SBV and the credit institutions (CIs), being fully aware of the Government's policy, have initiated many measures to support the economy. The SBV has also requested CIs to accept profit cuts in the short term to share the difficulties with the businesses.
Specifically, the SBV has issued a number of drastic and timely directives suitable to the situations and developments of the Covid-19 epidemic. On March 13, 2020, the SBV issued Circular No. 01/2020/TT-NHNN directing the CIs, the foreign bank branches to restructure the repayment periods, waive and reduce the interest and fees, maintain the debt classifications in order to support those customers affected by Covid-19 epidemic. This is a practical measure to support the businesses and the people who are facing difficulties due to lower revenues and are in need of prompt assistance.
After the US Federal Reserve (Fed) decided on a sharp and sudden cut of the key interest rates to 0-0.25% p.a. in just 2 weeks and many Central Banks have made similar moves, the SBV has decided to reduce the operating interest rates to continue to support the existing borrowers. The SBV's decision is suitable with the international market developments, while inflationary pressures have eased due to the sharp drop in the oil prices, and especially being supported by strong domestic macroeconomic foundations over the recent years.
The reductions of the operational interest rates including the refinancing rates and the OMO offer rate have signaled the SBV's readiness to support CIs when they need to access capital.
Correspondent: Could you tell us about the recent interest rate measures by the SBV to support the economy, while still ensure the macroeconomic stability and control the inflation?
Mr. Pham Thanh Ha: The SBV's key perspective is to assist by reducing the interest rates on the loan demands on the basis of considering appropriate macroeconomic fundamentals, ensuring inflation control objectives and safe operations of the CI system.
Besides the recent measures of waiving and reducing the interest, the 0.5% p.a. interest rate reduction on the cap of short-term lendings for priority areas will help to reduce the capital expenditures for the enterprises.
The SBV’s adjustments of the interest rates have sent out a clear and strong signal of readiness to support CIs in case they need to access capital. In addition, on the basis of the inflation control target, the SBV has lowered the interest rate cap on deposits for under-6-month terms (the interest rates of over 6 month terms are still under the agreed mechanism), which enables CIs to restructure their capital sources towards extending the terms, hence, CIs can be more comfortable to reschedule, waive or reduce the interest and fees in order to support their customers in accordance with Circular No. 01/2020/TT-NHNN.
Correspondent: What are the SBV’s management orientations in the coming time?
Mr. Pham Thanh Ha: In the coming time, the SBV will closely monitor the macroeconomic situations, especially the global financial market developments (interest rates, exchange rates, oil prices, etc.) thereby updating, analyzing and projecting the developments to flexibly and synchronously utilize the monetary instruments at the right time and with reasonable dosages.
With its operational experience in times of volatile market conditions over the years, the SBV currently has sufficient capabilities, resources, tools, as well as plans to maintain the macroeconomic stability and control the inflation in line with the target; stabilizing the interest rates and the exchange rates, standing ready to sell foreign currencies to intervene when necessary, ensuring the smooth operations of the money and forex markets.
VA