Securities investors are unable to explain why the stock market is still falling though bank interest rates have been decreasing.


Interest rates almost always go the opposite direction as stock prices. This means that stock prices decrease when interest rates increase, and vice versa.


Nguyen Duc Thanh, Director of the Centre for Economic and Policy Research (CEPR), said that in theory, the interest rate decreases should have positive impacts on the stock market's performance. When interest rates go down, the price of capital is cheaper, thus encouraging enterprises which have investment plans -- lower rates help ease the financial burdens on businesses.


Moreover, interest rate decreases mean that bank deposits are less attractive in the eyes of people. This prompts investors to withdraw money from banks to purchase stocks, which leads to stock prices increasing.


However, the theory seems to have been turned on its ear the last six months.


Since the latter months of 2008, the State Bank of Vietnam has continuously cut the basic interest rate from the highest peak of 14% per annum to 7% currently.


The deposit and lending interest rates offered by commercial banks have been slashed even more sharply. Banks are now lending at a little over 7% per annum, much lower than the high peak of over 19% per annum seen in mid 2008.


Nevertheless, the stock market has not risen as expected, but has continued sliding, from 561.85 points on August 27, 2008 to below 300 points at present.


Recently, after the basic interest rate was lowered from 8.5% to 7%, the VNIndex lost 17 points in the first three trading sessions of February.


Analysts say that interest rates are just one of the factors that impacts the stock market. They say the market has not recovered because the information about the interest rate cuts is not strong enough to raise the market up.


Nguyen Trong Tuan, General Director of International Royal Securities Company, said that the basic interest rate reduction still cannot help raise stock prices as the market is being affected by other phenomena, including the global financial crisis.


Analysts say that Vietnam’s stock market contains many risks in the short-term, but is considered an attractive market in the medium and long terms with many opportunities for investors