Vietnam Central Bank to Use OMO Tools to Stabilize Monetary Market
The State Bank of Vietnam, the country’s central bank, will use open market operations (OMO) interest rate, instead of the benchmark rate, to regulate banks’ interest rates at reasonable levels, aiming to stabilize local monetary market and curb inflation.
The OMO rates will play an important role in guiding deposit and lending interest rates at local banks, according to the SBV’s decision.
The central bank also plans to bring the refinancing interest rates closer to the common market rates on expectation that the move could help improve liquidity at local credit institutions.
Analysts have said that the SBV is no longer able to directly influence banks’ lending and deposit interest rates via the benchmark rate after commercial banks were allowed to apply negotiable interest rates on medium and long-term loans.
High interest rates remain a big threat to Vietnam’s macroeconomic stability, the analysts added.
Vietnamese Prime Minister Nguyen Tan Dung earlier stressed that high interest rates may spoil the country’s GDP growth target of 7.5% this year and lowering interest rates to support local companies is an urgent task for the central bank.
The U.S. newswire Bloomberg today reported that “Vietnam is considering ordering banks to set aside more money as reserves” to tackle inflation after the consumer price index reached a 22-month high of 11.75% in 2010.
A central bank official, however, has rejected the news, saying that further compulsory reserve ratio increase would make negative impacts on liquidity of commercial banks and hurt local companies which are in dire need of funds.
Deposit interest rates at local banks were popular at 13.5% and 14% per annum last week. Interest rates for loans to non-production sector remained at between 18% and 20% per annum while those for production firms were at 15%-18%.
Loans to small- and medium-sized enterprises and prioritized sectors are being charged with interest rates ranging from 12.5% to 14.5% per annum. (Banking Times)
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