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Economists predicts no adjustment in basic interest rate   2010-01-19 - VietNamNet/Info TV

It has been rumoured that the State Bank of Vietnam may raise the basic interest rate in January 2010. A prestigious foreign institution also claims that Vietnam may raise its basic interest rate considerably in 2010.


While the State Bank of Vietnam (SBV) has not confirmed or denied the rumour, securities companies have already begun arguing that SBV has no reason to raise the basic interest rate.


According to Tran Hai Yen, an analyst of Bao Viet Securities Company, it is not likely that the basic interest rate will increase in January, nor that it will rise as high as 12 percent.


Do Hong Diep, Head of the Analysis Division of Habubank Securities Company, also believes that SBV will not raise the basic interest rate in the first quarter of 2010 since it just raised the rate to eight percent in November 2009.


“If the central bank raises the basic interest rate right now, this will lead to a higher lending interest rate, which will certainly have a negative impact on obtaining a 6.5 percent growth rate in 2010,” Diep explained


Nguyen Lam Dung, Director of Habubank Securities Company, stated that the priority task for monetary policies in 2010 would be curbing inflation.


Meanwhile, 17,000 billion dong worth of bonds will mature in 2010, which means that the State will have to arrange money to pay interests on the bonds.


“I cannot see any factors at this moment which may lead to the increase of the basic interest rate in the first quarter of 2010,” Dung asserted


According to Yen, the rumour may have originated because of two potential problems for the national economy: the low liquidity of banks and the high inflation risk. However, Yen has reassured the public that the two problems are not as serious as some would suggest.


Regarding liquidity, the interbank interest rate decreased rapidly last week, meaning that capital shortages had eased. The overnight and one-week loan interest rates have returned to normal levels of 8.5-9 percent per annum, much lower than the highest peak of 20 percent seen in late December 2009.


Regarding the inflation rate, the consumer price index (CPI) may be very high in January and February. However, Yen said that this should be seen as the “seasonal price increase” (Tet will come in February, while January is the Tet sale season).


‘We don’t see a high probability of the basic interest rate increasing in January,” Yen reported. “We think that the State Bank of Vietnam will make no new decisions now, because it needs to wait and see the CPI figure in February to decide its next move.”


Yen does not agree with predictions that the basic interest rate may climb to 12 percent by the end of 2010. She believes that the inflation rate will be higher in 2010, but curbing inflation rate at below 10 percent is within the reach of SBV.


“The basic interest rate of 12 percent means that the ceiling lending interest rate is 18 percent, which is high enough to stifle economic recovery,” Yen commented.

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