Time for monetary policy loosening The State Bank of Vietnam has slashed the ceiling deposit interest rates several times in an effort to reduce the loan interest rates and increase the amount of capital to be pumped into the national economy.   The head office of the State Bank of Vietnam The Economist, after analyzing the moves of the central banks, has noted that it’s now the time for the loosened monetary policies. The Japanese Nikkei index increased by 40 percent in the period from November 2012 to the end of March 2013, which was the result of the Abe’s administration’s efforts to increase the money supply to stimulate the economy. In early January 2013, the Japanese central bank announced its targeted inflation rate at 2 percent instead of 1 percent as previously planned. The US FED has recently stated that it would take different measures to reduce the unemployment rate from 8 percent to 6.5 percent. Some European countries, which have been well known for the contraction policy, have also begun loosening their monetary policies. It’s now a growing tendency in the world that the central banks pump more cash into circulation to help make the capital cheaper. In Vietnam, the monetary policy tightening period which aimed to curb the inflation has ended with the prime interest rates having decreased significantly since early 2012.  The ceiling deposit interest rate for short term deposits (less than 12 months) has decreased from 14 percent to 7.5 percent. Similar things have also happened with other key interest rates, including the refinancing and re-discount interest rates. Besides, domestic investors have also witnessed the VN Index increasing by 17 percent in 2012 and by 17.69 percent in the first quarter of 2013. However, these are believed to be not the result of the Vietnamese cheap capital policy but the result of the overseas influences. A report of the Bao Viet Securities Company said that the foreign capital has been playing a very important role in the growth of the Vietnamese stock market since late 2012. Nguyen Nam Son, Managing Director of Vietnam Capital Partners, an investment fund, said the interest rate decreases have made Vietnam become more attractive in the eyes of foreign investors. The downward trend in the interest rates shows the inflation decreases, which makes the national economy more stable and less risky. Meanwhile, the domestic cheap capital flow still has not had any considerable impacts on the finance market. The most important goal of the effort to cut the interest rate – encouraging the production – has also been unreachable. The number of businesses bankrupted and dissolved in the first quarter of 2013 was higher by 26 percent than that of the same period of the last year. Why has Vietnam benefited from the overseas cheap capital policy, but not from its policy, then?  Analysts have pointed out two big differences in the loosened monetary policies applied by other countries in the world and Vietnam. The State Bank of Vietnam tries to manage the monetary policies with administrative orders instead of controlling the money supply to regulate the key interest rates. In mid-2012, the State Bank forced commercial banks to lower the interest rates at which they lent to businesses. The second difference is that the State Bank of Vietnam has pumped capital with a halt for the fear about the inflation returning. Dr. Le Dang Doanh has noted that if the deposit interest rates are lower than the inflation rate, depositors would not be able to enjoy real profits, which is acceptable to them. NCDT