Vietnamese lawmakers have called on the State Bank of Vietnam (SBV) to cut policy rates further to support the country’s economy and help it meet its GDP growth target of 6.5% this year. The economy has slowed down from 5.92% in late 2022 to 3.32% in Q1 2023, leading the SBV to cut benchmark rates twice this year. This article will delve deeper into the reasons behind the economic slowdown and the potential impact of further rate cuts.
Reasons for the Economic Slowdown:
The COVID-19 pandemic has had a severe impact on the Vietnamese economy, leading to a sharp decline in exports and a slowdown in domestic economic activity. The country’s manufacturing sector, which contributes significantly to its GDP, has been hit hard by supply chain disruptions and a shortage of raw materials. Moreover, the service sector, which makes up a significant part of the economy, has also been impacted due to restrictions on travel and social distancing measures.
Impact of Policy Rate Cuts:
The SBV has already cut its benchmark rates twice this year to support the economy. In February, it cut the refinancing rate from 5% to 4.5%, and the discount rate from 3.5% to 3%. Then, in April, it cut the refinancing rate further to 4%. The aim of these rate cuts is to make borrowing cheaper and encourage businesses to invest and expand.
Further rate cuts could have several potential impacts on the economy. First, they could lead to lower borrowing costs for businesses, making it easier for them to invest and grow. This, in turn, could stimulate economic activity and create new jobs, helping to boost the overall GDP growth rate.
However, rate cuts could also lead to higher inflation, as cheaper borrowing could lead to increased spending and demand. This, in turn, could lead to higher prices and reduce the purchasing power of consumers. It is therefore essential for the SBV to strike a balance between boosting economic growth and controlling inflation.
Lawmakers’ Calls for Further Rate Cuts:
Despite the SBV’s rate cuts, Vietnamese lawmakers believe that further cuts are needed to support the economy and meet the country’s growth targets. They have urged the central bank to consider cutting policy rates further to stimulate borrowing and investment.
Lawmakers have also suggested that the government should introduce additional fiscal stimulus measures to support the economy. These measures could include tax breaks, subsidies, and other incentives for businesses to invest and expand.
Vietnam’s economy has been hit hard by the COVID-19 pandemic, leading to a slowdown in economic activity and a decline in exports. The SBV has already cut its benchmark rates twice this year to support the economy, but lawmakers are now urging it to consider further rate cuts to stimulate borrowing and investment. While rate cuts could boost economic growth, the SBV must also be mindful of the potential inflationary impact. As such, a careful balance needs to be struck to ensure the Vietnamese economy can recover and meet its growth targets.