Vietnam rules out interest rate cuts despite record-low inflation

By Thao Vy, Thanh Nien News

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Vietnam's central bank says borrowing costs will not decrease any time soon. Photo: Dao Ngoc Thach Vietnam's central bank says borrowing costs will not decrease any time soon. Photo: Dao Ngoc Thach

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The State Bank of Vietnam said it will not lower interest rates any time soon even though inflation has been slowing down.
Bank deputy governor Nguyen Thi Hong told a press conference late last week that low inflation is only one of many factors that have to be considered before monetary policy is changed. The central bank will continue to "observe the situation," she said.  
Vietnam saw low inflation this year, mainly due to declines in crude oil's world prices, Hong said said. 
Since oil prices are unpredictable, they can rebound at any time, while borrowing demand has been increasing, so the central bank cannot afford to be complacent, according to Hong.
Although the government forecast inflation to be less than 2 percent this year, it is expected to be less than 5 percent next year, she noted.
Consumer prices grew only 0.58 percent over the past 11 months, the lowest in a decade. 
Loans in the banking system have grown 14.5-15 percent in the past 11 months and are forecast to rise 17 percent by this year-end, according to the government's latest figures.
Speaking to Thanh Nien, Nguyen Van Thuan, a lecturer at Ho Chi Minh City-based University of Finance and Marketing, expected no significant changes in borrowing costs, but added that there could be a slight increase next year.
With more foreign investors entering Vietnam, local businesses will need more money to compete with them, so borrowing demand will continue to increase, according to Thuan.
Businesses in Vietnam now take short-term loans with interest rates of 7-9 percent a year on average, and middle- and long-term loans at 11-12 percent a year.

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