Vietnam businesses struggle with unreasonable loan interest rates

The five-time policy rate cut recently thus seems futile.

Meanwhile, falling oil prices resulted in the reduction of fuel price by 2.8% for gasoline and by 1% for diesel, but fuel import tax rose from 10% to 12%. Electricity prices went up by 5% and water prices increased between 20% and 50% throughout the country.

Here's more from Kim Eng:

The VN-Index dropped 1.6% this week, the third weekly loss in a row. Trading volume decreased from $133mn last week to $99mn this week and all major sectors declined, with real estate stocks among the weakest during the week.

The Ministry of Finance reduced fuel price by 2.8% for gasoline and by 1% for diesel due to falling oil prices, but it increased fuel import tax from 10% to 12%. It appears that the government is using falling oil prices and falling inflation in Vietnam as an opportunity to gradually reduce subsidies in energy prices and to rebuild its reserves for potential future price stabilization. Electricity prices were hiked 5% and water prices will be increased between 20% and 50% throughout the country.

Falling inflation also allowed the government to cut both the refinancing rate and discount rate by a further 100 basis points to 11% and 8% respectively this week putting the two key policy rates well below their recent peak levels of 14% and 15%. The central bank has cut policy rates five times in the past few months but many businesses say that they are unable to access loans at reasonable interest rates. This helps to explain why the latest round of policy interest rate cuts has not helped the stock market. Also, many traders have started viewing falling inflation as a sign of weaker demand.

Another reason for the weak stock market is lack of clarity surrounding the government’s efforts to stimulate the economy. Various programs have been announced, including a proposed Distressed Asset Trading Company and a proposed public investment program worth about $1b a month for the rest of 2012, but so far little concrete details have been announced.

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