Lower interest rates key to economic recovery: official

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Lower interest rates will help Vietnam overcome economic difficulties in 2012, said Vu Viet Ngoan, head of the National Financial Supervisory Committee.

"Interest rates need to be cut by four or five percentage points, which will allow the economy to reduce costs for production by a total of VND100 trillion (US$4.8 billion)," Ngoan told Thanh Nien.

Such a goal can be achieved only when liquidity of the banking system has been improved, he said.

"Under these circumstances, policies should be loosened," he said, adding that credit needs to be eased.

Loans expanded around 11 percent last year. The central bank is aiming for a credit growth of 15-17 percent in 2012.

Ngoan said while polices designed to stabilize the economy are taking effect as evidenced by the low monthly inflation rates in the past five months  2012 is expected to be another tough year for businesses.

The declines of both the stock and real estate markets will put more pressure on the banking system, making it difficult for companies to take out loans, he said.

"Apart from focusing on providing loans to the agricultural sector and exporters, the State Bank needs to consider easing credit for consumers and certain segments of the real estate market, and especially for small to medium-sized enterpries," Ngoan said.

The economy is likely to grow 5.6-5.9 percent in 2012, he said, adding that a growth of 6-6.3 percent is possible if global conditions improve.

Ngoan also said the exchange rate could fluctuate by between 5 and 6 percent, calling for measures to manage the gold market more effectively to keep the dong stable against the dollar.

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