Banks cut rates on the back of low CPI

Eximbank, for instance posted a new deposit rate of 7.5 % a year instead of the previous 7.7% for deposits upward of VND500 million (US$23, 364). The bank’s 12-month term deposit was recorded at 6.1% per year, a significant fall of 0.28% a year. Meanwhile, its six to 11-month term deposit rates also fell 0.1-0.18% a year and one-month term deposit rate dropped a marginal 0.08 % a year.

Techcombank also cut deposit rates by 0.1-0.3% a year while the Saigon Commercial Bank (SCB) trimmed its deposit rates down 0.1-0.2% a year and according to a SCB representative, the deposit rates were likely to fall further in the future.

According to the socio-economic reports for February and the first two months of 2015 by the Ministry of Planning and Investment (MPI), the consumer price index (CPI) in February decreased 0.05% compared to January and 0.25% compared to last December.

The figure however increased 0.34% in comparison to last February. On average, the CPI for the first two months crept up just 0.64% compared to the same period last year.

Declining inflation therefore has provided very favourable conditions for interest rates cuts while still maintaining rates sufficiently attractive to maintain deposits.

SCB general director Vo Tan Hoang Van said that given the current stable macro-economic state, steep declines in input costs and with bad debts under control, cutting interest rates was totally acceptable.

Meanwhile, HSBC expressed the view that the State Bank’s (SBV) monetary moves in recent years, particularly its open market operations (OMO), would determine whether the interest rate was likely to be further trimmed in the coming months.

HSBC chose the OMO as it carried adequate historical data and impact with regard to the short-term interest rate in the market. According to HSBC, the real interest rate had in fact increased in recent months; and the bank therefore predicted that the SBV would be likely to cut the OMO by another 0.5% down to 4.5% by the end of the year.

“We expected that the SBV will announce another 0.5% OMO interest rate cut and it could be as soon as this week”, said HSBC Asia Economist Trinh Nguyen.

“However, there are uncertainties that the SBV could be cautious in its operations decisions including the precarious oil and gas prices, the likelihood of the Federal Reserve increasing interest rates this year and whether demand becomes more stable.

In addition, in the second half of the year, there should be unfavourable price conditions awaiting”, added Nguyen.