Not much value in reducing interest rates in Vietnam: ADB
The Asian Development Bank (ADB) does not see much value in reducing interest rates further in Vietnam, ADB country director for Vietnam Shantanu Chakraborty said at a press conference on Thursday.
Answering questions from The Investor, the executive said the country should utilize suitable monetary policy because inflation is forecast to climb, while the State Bank of Vietnam (SBV) needs to ensure growth momentum and at the same time control inflation.
"Let's use fiscal policy more effectively in 2024 and 2025 as an engine of growth rather than easing monetary policy further," Chakraborty added.
The SBV, the country's central bank, shifted to an accommodative monetary stance amid growth deceleration. Decreasing growth in the last quarter of 2022 prompted the SBV to slash its key policy interest rate four times in 2023, cutting rates by 1.5 percentage points.
The cuts widened the gap between the U.S. Federal Funds rate and SBV policy rates, increasing pressure on the Vietnamese dong and causing a decline of indirect portfolio investment, while heightening the risk of imported inflation. The dong depreciated 1.2% against the U.S. dollar in 2023, according to the April 2024 edition of ADB's Asian Development Outlook.
Following policy rate cuts, commercial banks lowered deposit rates on average by three-five percentage points to boost credit, the bank added.

The ADB holds a press conference in Hanoi on Asian Development Outlook 2024, April 11, 2024. Photo by The Investor/Tri Duc.
Regarding credit growth in Vietnam, outstanding bank loans had increased slightly by 0.26% as of March 25 against the end of last year, marking a rebound from negative growth a month earlier, the government-run General Statistics Office reported. Lending growth stood at 1.99% in the comparable period of 2023.
Against end-2023, lending fell 0.6% as of end-January and 0.72% as of end-February, according to central bank data.
Elaborating on the issue, ADB principal country economist to Vietnam Nguyen Ba Hung said Vietnam's monetary policy is already very supportive of economic growth, and there is not much space left to further reduce interest rates.
As a result, macroeconomic management should focus more on fiscal policy, Hung noted.
Regarding low interest rates and low credit growth at the same time, Hung clarified that the issue indicates that credit demand in Vietnam is low, and is also a reflection of slow growth in domestic investment and domestic consumption in the country.
The optimal solution for Vietnam is to stimulate demand, otherwise credit growth will aim for speculation, which could lead to economic bubbles. Vietnam should utilize both monetary and fiscal policies for this task. While the easing of monetary policy is suitable at the moment, fiscal policy should help create a vibrant economy to push credit demand among businesses and citizens, Hung said.
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