The rise in interest rate has become a prime topic for discussion in recent days. Some people fear that there could be a spiralling increase as last seen at the beginning of 2011.
Economist Cấn Văn Lực claims banks are merely ratcheting up interest rates to attract higher deposits to subsidise their credit growth targets for 2016. There are predictions that demand for credit could grow with nearly 10 billion US dollars of government bonds set to be issued this year. The rise in demand for medium-term and long-term credit for investment could also push up interest rates.
"Circular 36 urged small banks to increase interest rates. They will have to lower their short-term lending and focus on increasing medium to long-term lending from 60% to 40%." - Can Van Luc, Economic expert.
Higher inflation is also forecasted this year, which may also apply an upward pressure on interest rates. According to director of the Institute of Economics and Finance, Academy of Finance Nguyễn Đức Độ, inflation would mainly be the result of increased medical charges being transferred onto the public, but claims this should not be a major factor in interest rate rises.
"Foreign banks will now be able to buy up to 35% of government bonds issued, up from the previous 15%. This should result in greater demand for government bonds. This also shouldn't have any knock-on effect on interest rates on bonds" - Nguyen Duc Do, Director, Institute of Economics and Finance.
"The public should obviously choose the banks offering the best rates for their deposits. Businesses shouldn’t be concerned either, they don’t need to worry because banks are keen to offer favourable interest rates." - Can Van Luc, Economist.
Market watchers have suggested the restructuring of incompetent banks should help reduce unhealthy competition over interest rates. And secondly, there should be comprehensive management of capital through stocks and G-bond channels as commercial banks are currently incapable of providing sufficient levels of capital for medium to long-term investment.
