[NEWS] – Inflation is ’hot’, banks are ’racing’ to raise interest rates

On September 22, the State Bank adjusted a series of operating interest rates, including the ceiling deposit interest rate. These decisions take effect from September 23. For the first time in 2 years, the State Bank raised a series of operating interest rates including ceiling deposit rates, rediscount interest rates, and refinancing rates.

Specifically, the ceiling interest rate for term deposits from 1 month to less than 6 months increased by 1 percentage point to 5% per year. Particularly, people’s credit funds and microfinance institutions apply the maximum interest rate for term deposits from 1 month to less than 6 months at 5.5% per year.

For demand deposits with terms of less than 1 month, the ceiling interest rate was raised from 0.2% to 0.5% per year.

Besides, two other types of operating interest rates include the refinancing rate; the rediscount also increased by 1 percentage point, to 5% a year and 3.5% a year, respectively.

Interest rates for overnight loans in interbank electronic payments and loans to cover capital shortfalls in clearing payments of the State Bank with credit institutions increased from 5% to 6% per year.

This move comes after the US Federal Reserve (FED) raised interest rates by 75 basis points for the third time in a row to cool down inflation in the US. The fact that the State Bank raised a series of operating interest rates sent a message that capital sources for commercial banks were no longer cheap and limited the liquidity of VND in the market.

While the impact of the increase in refinancing and rediscount rates is negligible, raising the deposit rate ceiling will directly affect banks, businesses, and people.

The raised deposit ceiling allows banks in need of capital to pay higher interest rates to depositors. That also means increasing the input costs of banks, thereby, possibly causing the output interest rate - the lending interest rate to increase accordingly.

However, under the direction of the Prime Minister, commercial banks strive to reduce costs and reduce profit margins to maintain the same level of lending interest rates to support businesses and people. The pro-market factor is pricing. It is estimated that the P/E valuation of the VN-Index will return to about 12.1 times after reflecting the third quarter business results. This valuation is less than twice the standard deviation of the P/E ratio over the past 5 years.

Banks are also stepping up digitization to attract demand deposits from Casa. This is the money left in people’s current accounts, with low-interest rates, only about 0.2%/year, much lower than term deposits. Therefore, it will reduce the average cost of capital of the bank.

Thanh Long