tailieunhanh - Perfecting the mechanism for interest rate control in Vietnam today

Interest rate is one of crucial tools for central banks to administer its monetary policy, and has thus far been employed in many countries as an effective economic tool. Particularly in the market economy, it has become a useful tool for the central bank to control inflation and stimulate economic growth. | ECONOMIC DEVELOPMENT No. 207, November 2011 PERFECTING THE MECHANISM FOR INTEREST RATE CONTROL IN VIETNAM TODAY by MEcon. LEÂ PHAN THANH HOØA* & MEcon. LEÂ PHAN THANH HIEÄP* Interest rate is one of crucial tools for central banks to administer its monetary policy, and has thus far been employed in many countries as an effective economic tool. Particularly in the market economy, it has become a useful tool for the central bank to control inflation and stimulate economic growth. Recently, Vietnam’s interest rate has been a matter of concern to many researchers and the public. They were wondering how the interest rate, in the context of high inflation rate, could attract deposits and guarantee the payment ability of borrowers, appropriate costs as well as acceptable profit for commercial banks. The Vietnam’s State Bank Law 2010 has classified the interest rate as a tool for administering monetary policy and preventing usury. The base rate, as prescribed in the law, is based on market supply and demand and then promulgated by the SBV. Additionally, the Vietnam’s State Bank Law 2010 also allows the SBV to manipulate the mechanism for controlling the interest rate applied to transactions between banking institutions and between them and customers in case of unusual fluctuations in the money market. In order to clarify the aforementioned objective of the SBV, the paper will analyze and evaluate its interest rate controlling mechanism as from April 2010 till now, and then recommend some measures to perfect the mechanism. Keywords: interest rate, interest rate control, monetary policy, inflation, SBV 1. Deposit and lending rates Following Resolution 23/2008/NQ-QH12 dated Nov. 6, 2008 by the NA concerning the socioeconomic development plan in 2009; Resolutions 12/NQ-CP dated March 7, 2010 and 18/NQ-CP dated April 6, 2010 by the Government; PM instructions in official letter 627/VPCP-KTTH dated Jan. 23, 2009 by the Government Office regarding the application of agreed-upon