Vietnam government wants further lending interest rate cuts

The Vietnamese government has directed the State Bank of Vietnam (SBV) to continue to conduct a proactive, flexible and effective monetary policy, while encouraging credit institutions to simplify lending procedures and reduce lending interest rates to support economic growth.

In its freshly issued Resolution 01/NQ-CP, the first annual resolution, on the main tasks and solutions to implement the socio-economic development plan for 2024, the government urges priority to be given to promoting economic growth, maintaining macroeconomic stability, controlling inflation, and ensuring macro balances.

“The SBV should apply a reasonable expansionary fiscal policy and push ahead with flexible, harmonious and reasonable management of interest and exchange rates in accordance with the market situation, macroeconomic developments and monetary policy goals,” according to the cabinet.

The government requires the implementation of credit solutions consistent with macroeconomic and inflation developments. Banks must funnel credit towards production and business sectors, priority sectors and economic growth drivers; while controlling credit in potentially risky areas.

At the same time, the government asks for continuing solutions to increase businesses’ and people’s access to credit, and minimize and then put an end to "black credit," referring to unofficial credit channels.

In 2023, the Vietnamese economy faced numerous difficulties relating to inflation, exchange rates, falling liquidity, and market psychology affected by the Saigon Commercial Bank (SCB) case.

However, according to SBV Governor Nguyen Thi Hong, thanks to the government's directions, the central bank opperated proactively and flexibly. As a result, inflation was controlled at 3.35% and the Vietnamese dong only devalued 2.9%, becoming one of the most stable currencies in the world.

The state bank proactively reduced policy interest rates four times, bringing lending interest rates down by more than two percentage points compared to the end of 2022, and back to the pre-pandemic levels, she elaborated.

In 2023, credit into the economy grew 13.7%, lower than the 14.18% posted the previous year, she added.

According to Hong, the central bank has set a credit growth target of 15% for this year. The credit quotas for different banks will be adjusted in line with actual developments.

“The SBV will keep a close watch on the situation to make appropriate adjustments. If inflation increases, it will use monetary tools to control it with a view to achieving the set goal,” she noted.

She proposed the government synchronously implement measures to remove difficulties for the real estate and corporate bond markets, and create the best conditions for small- and medium-sized enterprises, which account for 95% of the total businesses in the country, to access bank loans.