Higher interests will help curb inflation, government told

HA NOI – The strong rise of commercial-bank interest rates was unavoidable but it would help reduce capital access and control rising inflation, State Bank Governor Nguyen Van Giau told the Government meeting this morning.

Monetary policy markers had either to raise compulsory credit-institution reserves or raise interest rates, he said.

But the first was impossible because of the harm it would do to liquidity.

So while higher interest rates might not be good for the economy, "We don't have any other choice," he said.

The governor assured the meeting the measures would apply for just three to six months and would have no long-term consequences.

Overnight yearly interest rates ranged from 8-8.5 per cent on the interbank market while other short-term loans attracted interest of at least 13.5 per cent.

Some small banks raised short-term deposit interest rates to 16 per cent this week.

Yearly lending interest rates went to 18-21 per cent.

Exchange rate

Governor Giau attributed the divide between official foreign exchange rates and the higher street rate to the domestic economy and international currency volatility.

Street vendors have been trading the US dollar at VND20,500-21,500 for the last two months; The price at commercial banks has been maintained at about VND19,500.

Viet Nam status as middle-income country meant changes in the giant economies would affect the country, he said.

Further, Viet Nam's trade deficit was usually high; the US dollar value was pegged to the gold price and speculators put heavy pressure on the exchange rate.

The central bank had worked with the Industry and Trade Ministry to provide oil and petrol importers US$400 million to meet their payments, he said.

But this did not mean the central bank would meet all such requirements because foreign reserve were mainly to support policy management, he said.

The central bank move has increased the foreign reserves at commercial banks from minus $355 million on Sunday, November 21 to minus $94 million yesterday.

Governor Giau said the central bank was committed to other measures to free any foreign-exchange bottlenecks.

Source: vnagency.com.vn