Enterprises need support through fiscal policies

The recent sharp interest rate cut of the State Bank of Vietnam (SBV) is said to be in time and will affect positively enterprises but these impacts are in the medium and long term.

Enterprises need support through fiscal policies

After the US Federal Reserve reduced its benchmark interest rates to zero to 0.25 percent per annum within two weeks on March 16, the central banks of other countries also made the same moves.

From March 17, the SBV also decided to lower its benchmark interest rates to help enterprises and people to access loans. This move of the SBV is to be in line with the developments of the global market as the inflation pressure lessened and oil price plunged steeply. Especially, it is backed by a solid domestic macro-economic foundation consolidated over the years.

By cutting benchmark interest rates, including refinancing interest rate and interest rate in the open market operations, the SBV signals its readiness to support credit institutions when they need to access loans.

Mr. Pham Thanh Ha, Director of the Department of Monetary Policy under the SBV, said that the operating point of view of the SBV is to reduce interest rates for borrowing demands based on considering the appropriate fundamental macro-economic factors that ensure the goals to control inflation and safety of the system. Besides, the managing agency also reduced 0.5 percent per annum for the maximum short-term lending interest rates for priority sectors, helping to lower capital costs for enterprises. The SBV also slightly cut the mobilizing interest rates for below-six-month terms that will facilitate credit institutions to restructure their capital sources in the direction of extending the term and create more favorable conditions in rescheduling the payment time, reducing interest rates and fees to support their clients, following the regulations of the Circular No.01/2020 of the SBV.

Dr. Le Xuan Nghia, a member of the National Financial and Monetary Policy Advisory Council, said that although interest rate cut means loosening monetary policy, the loosening effect is not great. Currently, the capital absorption of the economy is decreasing so interest rate cut at this time does not aim to stimulate demand but mainly to indirectly create a low-cost capital source to help enterprises to overcome this difficult period. Therefore, the interest rate cut will not affect negatively the macro-economy and not increase inflation.

Experts said that the decision and the extent of SBV’s interest rate cut were considered appropriate and timely. However, many experts said that the impacts of benchmark interest rates on market interest rates are limited and have a certain slowness.

However, the reduction in the ceiling of deposit interest rates for terms below six months from 5 percent to 4.75 percent and lending interest rates for priority sectors from 6 percent to 5.5 percent will have faster impacts.

After the SBV reduced interest rates, commercial banks simultaneously decreased their interest rates for terms below six months. Thereby, there were more resources to help lowering lending interest rates, enabling enterprises to access low-cost capital sources.

In the past two months, credit merely grew 0.06 percent which means that only around VND5 trillion were added to the market. Many commercial banks did not post credit growth in February. Leaders of a bank said that although his bank cut its lending interest rates by 1-1.5 percent per annum earlier and launched many promotional packages, enterprises had no demand for loans as production and trade activities were stalled.

Dr. Nguyen Tri Hieu, a finance-banking expert, said that interest rate cut is not enough to help the economy to overcome the crisis as it only affects the market. Meanwhile, the problem of the global economy in general and of Vietnam, in particular, is not only in the monetary economy but also in the commodity economy. The global supply chain is being disrupted so both supply and demand are decreasing. Monetary policy measures are only supportive measures. Therefore, besides monetary policy, it is necessary to have the support of fiscal policy through quick and strong aid packages to help enterprises affected by the Covid-19 pandemic to have money to cover expenditures.

Dr. Bui Quang Tin from the Banking University of Ho Chi Minh City said that the Government needs to increase more support through fiscal policies, such as tax and fee reduction, and increase Government spending. Because when reducing taxes and fees, the Government will help to ease the financial burden for enterprises. If the Government increases spending which means that the amount of money for public investment will be more, it will create more jobs, helping the economy to have more money, boosting purchasing power and stimulating enterprises to produce goods.

During this time, supporting enterprises via fiscal policies will be more important than monetary policies, Dr. Bui Quang Tin emphasized.

By Nhung Nguyen – Translated by Bao Nghi

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