Speaking at a press meeting over the weekend in HCMC, Giau said that as the CPI would ease down, the interest rate would also decrease, and recent signs on the market have proved this trend. He also pointed to some technical analyses that had expected the June CPI to hover around 1%, although some other experts might disagree with this low forecast.

The governor said certain principal interest rates had fallen in recent days that may pull down the market rate.

The Government bond coupon, for example, has decreased to less than 14% per year, while the seven-day rate on the inter-bank market has been around 14%-15% per year recently, he said.

Another important factor to pull down the interest rate is the dwindling demand for funds among many banks.

Many joint-stock banks have hit the credit growth cap of 20% so they will have no room to increase loans and thus will not need to mobilize more funds at high rates, the Governor said. He however made it clear that the central bank at this time prioritized measures to fight inflation, and therefore, it did not want to slash the interest rate quickly.

In addition, when the interest rate falls quickly, the money supply will increase, and the foreign exchange rate would be impacted strongly given the then-narrower difference in interest rates between Vietnam dong and the U.S. dollar, Giau said.

“The central bank will make use of all its instruments to manage the situation and when the economy is stable, we will manage to gradually decrease key rates to pull the market rate down,” Giau said and stressed that at this time the central bank had to be steadfast with its target of stabilizing the economy.

By June 10, outstanding loans of the banking industry had grown 7.05% from late 2010, of which credits in Vietnam dong had risen 2.72% and those the U.S. dollar by 22.2%. Credits for non-manufacturing sectors had fallen by 9.46% and accounted for 17% of total outstanding loans compared to 18.87% at the end of 2010.

Currently, according to Giau, there are 23 banks with the proportion of loans for non-productive sectors ranging from 22% to 50%, with 18 lenders registering a high proportion of 31%-37% and one with the ratio of over 50%.

He also said that those who fail to reduce loans for non-manufacturing sectors to 22% of the total late this month and 16% by the year’s end would face sanctions.

Loans for real estate in HCMC totaled VND95 trillion, but Giau hinted that the tighter credit control for the sector would be helpful rather than harmful.

“This is a good opportunity to eliminate speculators on the property market,” Giau said and added that the possibility of the property bubble bursting out would be very low as it was still under the control of the central bank.

In terms of foreign exchange market, Giau said the central bank would manage to limit the holding of U.S. dollars as assets and encourage sales of the greenback to banks. He repeated his expectation early this year that the country’s balance of payment in 2011 would have a surplus or at least US$700 million to US$1 billion.