GROUP REPORT course money and banking INTEREST RATE POLICIES AND ITS IMPACT ON VIETNAMS ECONOMY

FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS ======  ====== GROUP REPORT Course: Money And Banking INTEREST-RATE POLICIES AND ITS IMPACT ON VIETNAM'S ECONOMY Members Nguyễn Cẩm Hà – ID: 1611150016 Bùi Phương Hoa – ID: 1611150024 Ngô Thị Kim Lan – ID: 1611150032 Đặng Minh Trang – ID: 1611150065 Hà Nội – August, 2019 Table of Contents INTRODUCTION CHAPTER 1: OVERVIEW OF INTEREST RATE 1.1 Definition 1.2 Characteristics 1.3 Types of interest rate and interest rate policies .6 1.3.1 Types of interest rate ● Simple Interest ● Compound Interest ● Amortized Rates ● Fixed Interest ● Variable Interest ● Prime Rate ● Discount Rates 1.3.2 Interest rate policies .7 1.4 Factors affecting the interest rate 1.4.1 Economic Growth The most important factor in determining why interest rates change is the supply of funds available from lenders and the demand from borrowers 1.4.2 Fiscal deficit and government borrowing 10 1.4.3 Inflation 10 1.4.4 Global interest rates and foreign exchange rates: 11 1.5 The role of the interest rate in the economy 11 1.5.1 Macro role: 11 1.5.2 Micro role 13 CHAPTER 2: THE IMPACT OF INTEREST-RATE POLICY ON VIETNAM'S ECONOMY 15 2.1 Interest rate policy and interest rate channel in Vietnam 15 2.2 Impact of Interest rate policy .17 2.3 Expected impacts and changes in interest-rate policy to Vietnam's economy in US-China trade war 18 CHAPTER 3: RECOMMENDATIONS 20 3.1 Solutions to regulate and control interest rate 20 3.1.1 Improve interest-rate liberalization mechanism 20 3.1.2 Improve the effectiveness of interest rate instruments 22 3.2 Solutions to create conditions and foundations for the implementation of policies and mechanisms for interest rate management 23 CONCLUSION .24 REFERENCES 25 INTRODUCTION In this modern economy, the interest rates is one of the important tools for controlling market system Interest rates are an economic category, reflecting the relationship between lenders and borrowers, between supply of and demand for money and the economic status of a country The fluctuation of interest rates directly affects the decisions of individuals, businesses as well as the credit institutions and the whole economy Through those changes of interest rates, researchers can predict whether the economy is going up or down Therefore, interest rates are one of the most attracted variables in the economy and its movements are globally reported day by day Interest rate policy is an important instrument in managing national monetary policy, in order to promote economic growth and control inflation Based on this practical need, we would like to choose the topic: "Interest-rate policy and its impact on Vietnam's economy" Our report consists of chapters: Chapter 1: Overview of interest rate Chapter 2: The impact of interest-rate policies on vietnam's economy Chapter 3: Recommendations Due to limited knowledge and experience in the field of finance and banking, our report cannot avoid some careless mistakes We are looking forward to receiving comments and access from teacher and friends CHAPTER 1: OVERVIEW OF INTEREST RATE 1.1 Definition The term “interest rate” appeared when the relationships among sale, purchase and exchange of goods were formed Interest rate is one of the most universal variables in the economy that directly affects our daily life Interest rate (or credit interest rate) is an extremely important and sensitive economic tool for every economy which plays an important role of stabilizing and contributing to the completion of monetary policy to create a sustainable and prosperous world There have been many different views when making the concept of interest rates An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited or borrowed (called the principal sum) The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, the compounding frequency, and the length of time over which it is lent, deposited or borrowed It is defined as the proportion of an amount loaned which a lender charges as interest to the borrower, expressed as an annual percentage or basis point It is the rate a bank or other lender charges to borrow its money, or the rate a bank pays its savers for keeping money in an account Interest rates, in the simplest terms, are the costs to borrow money or the return for lending money 1.2 Characteristics Interest rates have main characteristics: ● Competitiveness: The interest rates are formed on the basis of competition among commercial banks or other credit institutions The competitiveness for interest rates is more obvious when the arrival of organizations participating and providing credit is increasing Interest rates must be attractive to take notice of customers to join Therefore, each commercial bank and credit institution wishing to develop their system must offer a competitive interest rate to others in order to draw customers’ attention ● Flexibility: The interest rates are formed in a flexible and sensitive manner, adapting to all subjects or objects under any circumstances The frequent changes of credit policies are consistent with the changes in the supply and demand for loans, the inflation rate, the State revenues and expenditures, the psychological factors of borrowers and lenders in the financial market 1.3 Types of interest rate and interest rate policies 1.3.1 Types of interest rate There are several ways of dividing interest rates into groups This report shows a breakdown of seven forms of interest, and how each might impact consumers seeking credit or a loan ● Simple Interest Simple interest represents the most basic type of rate Simple interest is paid only one time and does not change To calculate simple interest, multiply the principal by the rate and the term ● Compound Interest Compound rates charge interest on the principal and on previously earned interest Compound interest rates are often used for credit cards and savings accounts ● Amortized Rates Amortized rates, common in car or home loans, are calculated so that borrowers pay a larger amount of interest and a smaller amount of principal at the start of the loan As time passes, the amount of principal paid each time increases, shrinking the principal and therefore the amount of interest charged on it Thus, the amount of interest charged on the principal decreases over time while the interest rate stays the same ● Fixed Interest A fixed interest rate stays the same over the life of a loan Often used in mortgage or other long-term loans, fixed rates are pre-determined Borrowers benefit from a fixed interest rate because they know the rate won't rise The loan payment then remains the same, making it easier to include in the family budget ● Variable Interest Variable interest rates change depending on an underlying interest rate, usually the current index value Variable interest rates are used on loans such as adjustable rate mortgages Variable interest rates usually change weekly or monthly, and can increase or decrease ● Prime Rate The prime rate refers to the interest rate that commercial lenders use with their best – or most credit-worthy – customers This rate is based on the federal funds rate, or a daily rate that banks use when they borrow and lend funds with each other Though large corporations are normally the recipient of prime rate loans, the prime rate affects consumers, as well; personal, mortgage and small business loan interest rates are influenced by the prime rate ● Discount Rates When the Commercial Bank makes a short-term loan to a financial institution, they apply an interest rate known as discount Discount rates are based on cash flow analysis, which takes both the time value of money and the risk of future cash flow projections into account 1.3.2 Interest rate policies ● Ceiling interest rate policy: The ceiling interest rate policy is a policy of fixing the maximum lending interest rate This policy encourages capital mobilization and enhances government control The Government sets a certain interest rate and imposes common rates on the whole banking system and on the whole economy ● Fixed interest rate policy: Fixed interest rate is the interest rate that the Central bank controls Commercial banks in both mobilizing and lending rates Under this policy, there will be no interest rate competition in the credit and financial market and thus not promote economic development ● Free interest rate policy: The policy of interest rate liberalization is the policy that the government will intervene when the interest rate exceeds the general interest rate Interest rates increase or decrease completely due to changes in supply and demand in the market However, it only works in a perfectly competitive environment In Vietnam, we are currently using the negotiable interest rate policy Credit institutions are allowed to use the negotiable interest rate mechanism in commercial activities, replacing the basic interest rate management mechanism In the long term, the elimination of the "ceiling" on lending rates will enable credit institutions to expand methods of capital mobilization, lending and mobilizing with interest rates suitable to demand and supply in the credit market This is especially beneficial for economic organizations and producers in rural areas, especially in the context of credit growth is much faster than capital mobilization growth This interest rate mechanism will create favorable conditions for the reform of market-oriented banking system This will eliminate the "differences" in the Vietnamese banking system to gradually integrate into the international credit market ● Preferential interest rate policy: Preferential interest rate policy is a policy for some special subjects such as the poor with low interest rates The implementation of this policy makes borrowers pay less attention to efficiency, which leads to the inefficient use of capital invested in projects, which does not help capital growth and most of this policy is taken from the Budget 1.4 Factors affecting the interest rate 1.4.1 Economic Growth The most important factor in determining why interest rates change is the supply of funds available from lenders and the demand from borrowers Take the mortgage market as an example, in a period when many people are borrowing money to buy houses, banks need to have funds available to lend These funds can come from their own depositors since the banks pay 2% interest on fiveyear GICs and charge 4% interest on a five-year mortgage By borrowing from their depositors and lending to their mortgage borrowers, a bank makes a 2% “Net Interest Margin” (NIM) and a profit But if the demand for mortgage borrowing becomes higher than the available funds, the banks will either have to raise their GIC rates to attract more retail funds or borrow money by issuing bonds to institutions in the “wholesale market” Institutional investors have more investment opportunities so this source of funds is more expensive and the banks might have to pay higher interest rates Mortgage rates will then go up to reflect the higher cost of bank mortgage funding if funding is hard to obtain If the banks have lots of money to lend and the housing market is slow, any borrower financing a house will get “special rate discounts” and the lenders will be very competitive, keeping rates low 1.4.1.1 Demand for money Typically, in a growing economy, money is in high demand Manufacturing sector companies and industries need to borrow money for their short-term and longterm needs to invest in production activities Citizens need money as they need to borrow for their homes, buy new cars, and other needs 10 of priority in certain economic development strategies This is important for LDCs who want to take the leap to get right into modern technology Thus, interest rate can be considered as a direct tool of monetary policy It directly or indirectly influences the amount of money supply in circulation, thereby helping to achieve the goals of monetary policy An adjustment in the interest rate management mechanism will affect the amount of money in circulation, especially the amount of money supplied by banks into circulation because the interest rate directly affects the business profits of banks The expansion of the interest rate frame, either raising the ceiling interest rate for the old rate control mechanism or raising the basic interest rate in the new interest rate mechanism, will have the effect of increasing the amount of money in circulation and vice versa Another impact of interest rates is its effect on investment and savings There are many different opinions about the impact of interest rates on the formation of savings, but most economists think that interest rates have an impact on the size of people's savings The higher the actual interest rate, the greater the amount of money deposited in the bank, which will affect the size of people's asset purchases When interest rates are positive, it will stimulate people to deposit at the bank because it is more profitable and safer than hoarding assets, thereby increasing the bank's overall capital and the amount of money for the national economy, the impact of positive real interest rates has created favorable conditions for financial savings In summary, interest rates have impacts on several dimensions of the economy, on development and economic growth A reasonable interest rate policy will be both a condition to attract idle capital and to promote investment in the economy, helping the economy growing steadily 1.5.2 Micro role Interest rates are the factors that promote the effectiveness of businesses, offset costs and bring profits to banks: businesses that borrow money from banks must repay in due time both capital and interest Therefore, in order to ensure the capital repayment, businesses must really pay attention to their production and business 14 results If repayment is not on time, the overdue interest rate is higher than the timely interest rate (equal to 1.5 times the due interest rate), which motivates enterprises to try to perform better in business to repay debts on time Financial activities of business banks and credit institutions are mobilizing capital for lending When mobilizing capital, the bank must pay interest to the creditors, and upon lending, it will collect interest from the borrowers The Bank must calculate the appropriate lending and borrowing rates to offset its operating expenses and make profits On the other hand, interest rates are a tool to compete among credit institutions Recently, the State Bank of Vietnam only controlled the maximum ceiling on lending rates and the difference between deposit interest rates and loan interest rates to ensure benefits for depositors, borrowers, and business banks to have the ability to offset partly costs and risks, if any In the market economy, due to the competition law, all economic sectors have a fierce rivalry in terms of products, prices, customer services, sales services, etc Remaining stable in such competition is not simple With the motto "borrowing to lend", banks’ mobilization and use of capital are closely related to each other Therefore, commercial banks have to renovate their service methods and mobilize capital to maximize capital mobilization while also boosting lending In addition, other credit institutions also need to strive to lower costs, create an infrastructure for lowering "output" interest rates to attract more customers to open accounts and borrow 15 capital CHAPTER 2: THE IMPACT OF INTEREST-RATE POLICY ON VIETNAM'S ECONOMY 2.1 Interest rate policy and interest rate channel in Vietnam Before 2000, the SBV managed interest rate administratively by ceiling and floor mechanism A new interest rate policy was adopted in August 2000, under new mechanism, commercial banks could adjust their domestic currency lending rates based on a base interest rate announced by the SBV However, for lending rate, the ceiling was 0.3% and 0.5% for short-term loans and medium and longterm respectively Interest rates were fully liberalized in June 2002, banks are now free to determine their business interest rate based on their own appraisal and negotiation with their customers However, due to negative effects of the Global Financial Crisis in 2007, the SBV had to return the administrative mechanism Since then borrowing and lending of commercial banks has not been allowed to exceed 150% of the base interest rate, which is announced by the SBV monthly To date, the SBV has three types of policy interest rates including the base rate, the refinancing rate, and OMOs’ rate: (i) The base rate: The SBV calculates and announces the base rate monthly based on economic performance and commercial interest rates This SBV’s rate was used as a reference rate for commercial banks to determine their business interest rate However, in fact this rate had no impact on market rate, event just for reference In a number of period, the base rate was kept unchanged while market rate fluctuate significantly This is because the calculation of the base rate had not actually based on economic performance and more importantly, there was no policy instrument to support this rate (ii) The refinancing rate is the interest rate of the central bank’s last lending resource for the market (the highest interest rate ceiling), but it tends to be lower than the interest rates on the interbank market This situation has been terminated since the 16 middle of 2011 when the central bank began to adjust and continuously improve refinancing to push interest rates higher compared to the market rate However, binding and the impact of this rate to the market are still limited to control the market interest rates Thus, the central bank must use additional interest rate tools such as the ceiling rate (iii) The interest rate on the open market in theory is the interest rate that had the closest relationship with the interbank interest rates, however, the relationship between these two types of interest rates are not tight Simultaneously, interbank interest rates are lower than deposit rates on the primary market This reflects the excess of liquidity in the system but difficulties in attracting liquidity by the central bank Thus, the control of interest rates by the system tools/money market operations of the central bank was not effective This is also why besides the use of this tool from 2010 till now to bring the market interest rate to the desired level, the central bank must use the ceiling rate Discount rate, refinancing rate and base rate were positively correlated with market rates (3-month deposit and lending rate) However, deposit rate was above discount rate and refinancing rate for most of the period Hence, Vietnam has not succeeded in establishing a benchmark interest rate corridor in which deposit rate should be between the discount rate and refinancing rate In addition, The State Bank of Vietnam also allowed commercial banks to apply negotiable lending interest rates for medium and long-term lending activities (Circular 07/2010 / TT-NHNN issued by the State Bank on February 26) / 2010 and for all types of loans (Circular 12/2010 / TT-NHNN, April 14, 2010), in order to stimulate capital markets for businesses The return to applying negotiable interest rates between borrowers and lenders policy have significantly reduced the role of the base interest rate because they have terminated their operations under the ceiling interest rate regime (maximum equal to 150% of the prime interest rate) The increase in basic interest rate from 8% to 9% / year in November 2010 and stable at shows 17 that the guiding role and reference information of the base interest rate become very lackluster in terms of being a reference 2.2 Impact of Interest rate policy It can be said that the SBV operates the base interest rate, refinancing interest rate and discount rate are relatively flexible, consistent with the monetary policy, market demand and supply, ensuring a harmonious relationship between VND interest rates - exchange rate - foreign currency interest rate and considering the quantitative relation, the fluctuation trend of major interest rates in the monetary market The main types of interest rates on the money market were more positively related: The OMOs rate < base interest rate < lending interest rate of credit institutions to customers However, the mechanism of interest rate management of the State Bank still has some limitations: - The amount of money supplied for the credit line is controlled by the Government every year and the main objective is to curb inflation, so the effect of refinancing interest rate in operating monetary policy is still limited - The relationship between market interest rates and the interest rates of the State Bank (refinancing interest rate, discount rate, open-market professional bidding interest rate, treasury bill bidding interest rate, deposit interest rate of banks CIs at the State Bank) are still weak, sometimes separated, fluctuating and not suitable to the market interest rate mechanism The role of regulating market interest rates of OMOs rate is still limited - The monetary market is not yet developed and heterogeneous, making the effectiveness and transmission speed of monetary policy affect market interest rates more sluggish - Generally, treasury bills play a very important role in the money market, treasury bill interest rates are considered the lowest interest rates in the money market However, in fact, over the past years, the interest rates of Treasury bills 18 did not really match this principle, but sometimes equal to the interest rates of the same term of commercial banks The treasury bill bidding session at the SBV is not quite an interest rate tender, so it sometimes doesn't reflect correctly the market interest rates - The current interest rates on interbank money market among credit institutions sometimes still not reflect the true supply - demand of capital 2.3 Expected impacts and changes in interest-rate policy to Vietnam's economy in US-China trade war After the decision to apply a 25% tax on US $ 50 billion of goods imported from China took effect in August 2018, on September 17, 2018, US President D Trump officially announced that US would impose a 10% tax on goods imported from China worth nearly 200 billion USD, effective from September 24, 2018 and the tax rate was to 25% from May 10, 2019 President D Trump also warned, if no agreement is reached, the US will continue to impose tariffs on about USD 300 billion of remaining imported goods from China In response, China imposed a tax of 8-25% on more than 5,000 products imported from the US with a total value of 60 billion USD, one of which came into effect on September 24, 2018 and the rest came into effect from 1/6/2019 The complicated happenings in the global finance market have had strong impact on emerging countries However, Vietnam bears less impact thanks to its flexible exchange rate policy Currently, to respond to the potential impacts of trade war, countries tend to lower their interest rates However, in the case of Vietnam, there are numerous reasons why VND interest rates cannot be lowered First, inflation remains high, as expected by the National Assembly of 4% Normally, interest rates must be higher than inflation to some extent Over the years, when inflation rate stood at 3-4%, interest rate would be at 7-8% / year Therefore, the VND interest rate was not lowered, because the inflation did not decrease much 19 Secondly, Vietnam is implementing the policy of restructuring banking system, including bank liquidity In general, Vietnam's banking system is still stable, although there are still Credit Institutions with bad liquidity indicators and debt treatment Therefore, a number of credit institutions recently raised their interest rates and have been warned by the State Bank of Vietnam Third, the State Bank of Vietnam also requested to reduce the ratio of shortterm capital used for medium and long-term loans To meet the requirement, credit institutions must have more capital Therefore, though they can curb credit growth, credit institutions at the same time need to increase capital mobilization Those are the reasons why Vietnam cannot lower interest rates However, lowering interest rates is a legitimate requirement of the economy because this is the cost of capital and input for manufacturing and production of the economy, so it is necessary to set a target to reduce interest rates Specifically, when macroeconomic stability with low inflation is achieved, the State bank of Vietnam must set a roadmap to lower interest rates 20 CHAPTER 3: RECOMMENDATIONS 3.1 Solutions to regulate and control interest rate 3.1.1 Improve interest-rate liberalization mechanism In order to implement the process of interest rate liberalization, contributing to the integration into the global financial and monetary market in the coming time, the author proposes the following solutions: Firstly, build a system of indicators to control the interbank market: The establishment of a system of indicators controlling the interbank market to timely monitor interest rate movements in the interbank market, as a basis for issuing refinancing interest rate Currently, the State Bank is implementing a direct operating mechanism with limits on mobilizing and lending interest rates of commercial banks, making commercial banks' interest rates inconsistent with capital supply and demand relations in the market making the use of refinancing interest rate tools, discount rates less effective Secondly, forecast interest rate fluctuations according to the economic situation: The forecast of interest rate fluctuations according to the domestic and foreign economic situation, thereby applying measures to guide interest rates in line with the reality of the economy , because interest rates are an important regulator of monetary policy, especially in the process of Vietnam’s integration Thirdly, amend and supplement regulations on refinancing, discounting and rediscounting Accordingly, the State Bank needs to make amendments and supplements to the regulations on refinancing, discounting and rediscount of the State Bank for credit institutions in a more open way in terms of borrowing conditions and loan limits for commercial banks Forthly, perfect the regulations on interest rates, foreign exchange management regulations in accordance with international practices SBV needs to improve the 21 regulations on interest rates in line with international practices, improve and develop the inter-bank domestic currency market, government bond bidding market, open market operations to get interest rates This market is the basis for determining base interest rates in Vietnam dong At the same time, it is necessary to announce the interest rates of deposits and loans in VND by the year, the specific terms for lending and mobilizing interest rates are calculated on the basis of the annual interest rates for foreign currency interest rates in accordance with international practice Fifthly, reducing forms of preferential loans in the banking system: This is an indispensable requirement in the process of interest rate liberalization Based on the experience of interest rate liberalization in other countries, it is too late to mention the issue of eliminating preferential interest rates in the process of interest rate liberalization in Vietnam Countries usually carry out this control at the beginning of interest rate liberalization process because the existence of preferential interest rates affects the commercial lending rates of financial intermediaries Normally, commercial banks still use the self-mobilized capital to give preferential loans according to the designated targets, but the subsidy for reducing lending interest rates has not been fully implemented (only done when the business is making a loss) In such cases, commercial lending rates will be pushed up to compensate for preferential loans In addition, preferential lending in these cases is often associated with credit risk, caused by the borrower, may also be caused by commercial banks themselves, because they think the loans have been guaranteed by the State, should not care about the efficiency of investment, monitoring the use of loans Sixthly, improve the management capacity and supervisory role of the State Bank: It is necessary to improve the independent position of monetary policy and the autonomy of the State Bank in managing monetary policy Reform the organizational structure of the State Bank system aiming for centralizing management, administration, improving specialization, clearly defining functions and duties, and strengthening coordination among units 22 Seventhly, improve the competitiveness of commercial banks The State Bank of Vietnam should approve the classification and resolving of non-performing loans (NPLs) of commercial banks, enhance the transparency of annual financial statements and strengthen assets and credit quality as well as improve the quality of credit control activities of commercial banks to meet the requirements of international integration 3.1.2 Improve the effectiveness of interest rate instruments Currently there are many ways to determine the operating interest rate of the money market In the US, FED uses interbank-oriented rates and discount rates, the ECB (Eurozone’s Central Bank) uses refinancing rates, overnight lending rates, and overnight interest rates, BOJ (Bank of Japan) uses use discount rates and overnight rates Meanwhile, the trend of using interbank interest rates is gradually becoming popular in developing countries Interbank market can be understood as wholesale capital market among banks Therefore, interest rates on the interbank market are always a sensitive variable and fully reflect the fluctuations of the interbank market in particular and the monetary market in general Therefore, interest rates in the interbank market should become interest rates in Vietnam market The interbank market establishes interest rates based on negotiated interest rates (lending rates are based on self-assessment and negotiation with customers) Hence, the general solution is to improve the efficiency of the interbank market, ensuring that this market rate is the basis for the central bank to determine the interest rate of the VND (VN BOR interest rate) - Select a number of reputable banks and their offered interest rate on the market as a basis for determining the average transaction interest rate in the interbank market, this average interest rate will be published daily for reference by credit institutions - The State Bank should develop an interest rate scheme based on interbank rates and other interest rates 23 - Besides, other interest rates need to be revised and supplemented to suit the development trend in the future to further improve the effectiveness of these interest rate tools, for example: Treasury bills interest rates, rediscount interest rates, interest rates on the open market… 3.2 Solutions to create conditions and foundations for the implementation of policies and mechanisms for interest rate management Enhancing the independence and operability of the State Bank, step by step clearly delineating the powers and responsibilities of the National Assembly, the government and the State Bank in the process of planning and implementing monetary policy, restructuring the bank The State Bank should follow a centralized management model Issuing new regulations on the safety of the credit institution system, accounting, bank audit, building a system of measures to control international capital flows and foreign debts Innovating monetary policy and planning, improving macroeconomic and monetary forecasting capability of State Bank Developing money market, modernizing payment system; diversify and standardize debt instruments; developing interbank market; developing foreign exchange market Mobilizing capital sources, including ODA, to continue investing in modernizing the payment system; continue to improve the legal framework in the field of payment Finally, encouraging commercial banks to expand and connect card payment network and other modern forms 24 25 CONCLUSION Interest rate is a difficult problem which requires governments to allocate resources to regulate and manage it Therefore, the State Bank of Vietnam needs to regulate the interest rate policy more flexible and sensitive, and improve both the structure and the content in order to fulfill the macro-economic objectives of the economy Especially in Vietnam’s current context, it is necessary to implement a policy of liberalizing interest rates cautiously through macroeconomic stability, building a mechanism of banking management and supervision, and credit activities in accordance with building a competitive environment among banks In 2019, the Government of Vietnam remains steadfast in its goal of maintaining macroeconomic stability, reforming key economic sectors and renewing the economic growth model in order to achieve the socio-economic development objectives set for the 2016-2020 period Besides, the biggest challenge forecast by economic experts is the unusual fluctuations from the global financial market raising from the US-China trade war and the monetary tightening anticipated by the US Federal Reserve (FED) Thus, the SBV needs to be more active and flexible in implementing its monetary policies in line with other macro policies to maintain the banking system stability The SBV should continue to promote the effective implementation of monetary policy in accordance with other policies to fulfil the economic targets 26 REFERENCES Connell, B (2019) “What Are the Different Types of Interest and Why Do They Matter?” [online] TheStreet Available at: https://www.thestreet.com/personalfinance/education/different-types-of-interest-14833335 [Accessed Sep 2019] The Financial Pipeline (2014) “Understanding Why Interest Rates Change - The Financial Pipeline” [online] Available at: https://www.finpipe.com/why-do-interestrates-change/ [Accessed Sep 2019] Moneycontrol (2019) “Explainer: Six factors that influence interest rates in an economy.” [online] Available at: https://www.moneycontrol.com/news/business/ personal-finance/explainer-six-factors-that-influence-interest-rates-in-an-economy3549621.html [Accessed Sep 2019] Agarwal, V (2009) “What influences interest rate movements?” [online] The Economic Times Available at: https://economictimes.indiatimes.com/what- influences-interest-rate-movements/articleshow/4599202.cms [Accessed Sep 2019] Luanvan.net.vn (2013) “Luận văn Chính sách lãi suất tác động sách lãi suất đến kinh tế thị trường giai đoạn từ năm 2000 đến Việt Nam” [online] Available at: http://luanvan.net.vn/luan-van/luan-van-chinh-sach-lai-suat-vatac-dong-cua-chinh-sach-lai-suat-den-nen-kinh-te-thi-truong-giai-doan-tu-nam-2000den-52264/ [Accessed Sep 2019] Tradingeconomics.com (2019) “Vietnam Interest Rate | 2019 | Data | Chart | Calendar | Forecast | News " [online] Available at: https://tradingeconomics.com/vietnam/interest-rate [Accessed Sep 2019] FocusEconomics | Economic Forecasts from the World's Leading Economists (2019) “Vietnam Interest Rate - Vietnam Economy Forecast & Outlook.” [online] Available at: https://www.focus-economics.com/country-indicator/vietnam/interestrate [Accessed Sep 2019] 27 vietnamnews.vn (2019) “Exchange rate in 2018 stable despite pressure.” [online] Available at: https://vietnamnews.vn/economy/483120/exchange-rate-in-2018-stabledespite-pressure.html#E32PEl5DgIy0YVhR.97 [Accessed Sep 2019] TapChiTaiChinh (2019) “Tiến trình tự hóa lãi suất Việt Nam số kiến nghị.” [online] Available at: http://tapchitaichinh.vn/kinh-te-vi-mo/tien-trinh-tu-dohoa-lai-suat-o-viet-nam-va-mot-so-kien-nghi-125678.html [Accessed Sep 2019] 28 ... interest rate and imposes common rates on the whole banking system and on the whole economy ● Fixed interest rate policy: Fixed interest rate is the interest rate that the Central bank controls... amount of money in circulation and vice versa Another impact of interest rates is its effect on investment and savings There are many different opinions about the impact of interest rates on the... of money for the national economy, the impact of positive real interest rates has created favorable conditions for financial savings In summary, interest rates have impacts on several dimensions