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Will interest rates continue falling until year-end?

Both deposit and lending rates have fallen sharply compared to the period prior to the onset of Covid-19. But the question that many are asking is whether the rates will continue dropping until the end of 2021?

Data showed the average deposit rates declined slightly in September for terms of 6 months and 12 months. Specifically, the rate fell by 0.03 percentage points to 4.71% for six-month deposits and 0.002 percentage points to 5.561% for 12-month deposits.

Will interest rates, continue falling, until year-end, deposit and lending rates, Covid-19 pandemic,  investment channels

A bank teller advises a customer on savings rates.

Such low deposit rates have made saving less attractive, causing a significant amount of money flow to other investment channels such as property and stocks.

According to the General Statistics Office, capital mobilised by credit institutions rose by only 4.28% in September, compared to the 7.48% rise in the same month last year. However, the lower deposit rates will enable banks to cut lending rates, thus helping enterprises access cheap credit for their recovery plans.

In the inter-bank market, sharp interest rate reductions in the third quarter for overnight, one-week and one-month lending indicated strong liquidity. The pressure to reduce input costs to lower lending rates has made it difficult for many banks to maintain attractive savings rates as previously.

But the leader of a Hanoi-based commercial bank stated that lending is also not easy due to the negative impacts of Covid-19. Experiencing production disruptions, many enterprises are unable to meet borrowing requirements. As such, banks need to provide financial advice and support their customers to revive production.

According to economist Can Van Luc, if the deposit rates are too low, the public will turn to other more profitable channels such as property, stocks and gold. When that happens, the banking system will face a shortage of funds to lend towards production and consumption.

The State Bank of Vietnam (SBV) has announced that it will consider raising the credit limit for commercial banks to boost economic growth. The central bank is also considering a package of VND3 trillion (US$131.7 million) to offset the reduced interest rates in order to support people and businesses.

SBV Deputy Governor Dao Minh Tu said the monetary policy direction until the end of 2021 will be to maintain the current lending rates while the central bank will monitor the epidemic dynamics closely.

The SBV will ask credit institutions to proactively balance their financial capacity so as to determine appropriate lending rates and reduce operating costs to focus resources on lowering lending rates for current and new loans.

For now, the central bank has no plans to cut deposit rates in order to protect the liquidity of the system and the benefits of depositors.

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Source: NDO

Will interest rates, continue falling, until year-end, deposit and lending rates, Covid-19 pandemic, investment channels
 
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