Hanoi (VNA) – The State Bank of Vietnam (SBV) iscutting down a series of key interest rates by 0.25%-0.5% from June 19, whichis expected to make a double impact on the economy thanks to stronger credit activities and higherliquidity.

According to experts, the four major reasons behind the SBV’sdecision are Fed’s ending of interest rate hike after 10 consecutive increases, adownturn trend of inflation since February, the stable domestic currency demandand stronger liquidity of the banking system, and a drop in exports andinvestment in industrial production in May.

In the domesticmarket, the pressure on interest rates and exchange rates has beensignificantly eased. In fact, the interest rate level in Vietnam hasdecreased by 1%-1.5% and the USD/VND exchange rate even slightly decreased by0.57% compared to the beginning of the year.

Dr. Nguyen Huu Huan from the Ho Chi Minh City University of Economicssaid that the SBV’s decision will create a boost to the economy, providingfavourable conditions for the people and businesses to access capital at lower interest rates.

Associate Prof. Dr. Dinh TrongThinh held that the SBV’s reduction of interest rates for four times in a rowwithin only four months will enable commercial banks to cut their depositinterest and lending rates.

Thinh underlined that there is a high hope that the rates in the economy will return to the 2019 level by the end of this year, but with thereduction speed recorded recently, the scenario may happen by the end of the third quarter.

The reduction ofthe ceiling lending interest rate was also welcomed by businesses. Tran DucNghia, General Director of Delta International Company, said that the SBV’s moveto reduce interest rates for the fourth time in a row will certainly bring downthe lending interest rates, thereby reducing the loan cost for business. Inparticular, this is a reduction in operating interest rates, not a singleinterest rate reduction by a few banks, which means all businesses will benefit.

More over, not only businesses, individual customers willalso benefit from the reduced lending interest rates, which is expected toencourage consumption, production and business activities, resulting in adouble impact on the economy, Nghia underlined.

SBV leaders said that the cut in interest rate ceiling forshort-term VND loans will create favourable conditions for businesses andpeople to access low-cost loans forproduction and business in priority areas and key areas playing the role as adriving force for economic growth in accordance with the Government's policy.

Nguyen XuanThanh, a senior lecturer of Fulbright University, said that although the operating rate hasbeen reduced four times, it has yet to be enough to make an impact on theeconomy as the capital expenditures of banks are still high, while manyfirms have still had no access to capital.

Economist Can Van Luc held that inflation is not a really big problem now as world inflation and prices are falling, while the exchangerate has remained stable, along with weak demands and slow money cycle. But hestill stressed the need to enhance the coordination efficiency among  the policies,especially monetary, fiscal, price policies and other macro-economic onesto actively rein in inflation and ensuring macroeconomic stability.

Leaders of the SBV affirmed that the bank will continue to payattention to dealing with the inflation pressure, while keeping a close eye on thedomestic and global situation to direct credit organisations to cut cost and reducelending interest rates so as to support businesses during the recovery anddevelopment process.

However, experts held that interest rate cut is not the “universal key” to"unlock" credit, promote cash flow, recover consumption, and boost economicgrowth. They pointed to the need for the stronger fiscal policies to encourageconsumption and production, as well as the speeding up of public investment to supportbusinesses and the economy./.