Domestic interest rates to rise from 2019

19-Sep-2018 Intellasia | BizLIVE | 6:00 AM Print This Post

Due to internal an external risks of the economy such as the more tightening monetary policy, escalating trae tensions, strong omestic inflation, etc., the omestic interest rates are forecaste to start increasing from 2019, accoring to Viet ragon Securities Company (VSC).

Specifically, with regar to external risks, the tightening monetary policy is irectly increasing the costs of borrowing on a global scale after a ecae of loosening. In the US, the Feeral Reserve (Fe) may increase interest rates by two more times in 2018 when the inflation is approaching the target. The Fe’s interest rates are expecte to reach 3.5 percent per annum in 2019. The European Central Bank (ECB) will close the asset purchase programme by the en of 2018, while the Bank of Japanese (BOJ) may reconsier the inflation objective an the orientation of monetary policy.

In aition to the increase of the greenback as well as the crue oil price an the escalating trae tension, the pressure on the capital costs is spilling over an threatening financial stability as well as creit quality in many countries. Countries that own large foreign ebts are more vulnerable to global monetary tightening policy. Many other countries have starte to increase the operating rates in orer to control inflation an capital withrawals.

Currently, countries are facing huge ebts such as Venezuela, Argentina an Turkey have ha to evaluate their currencies. Investors an creitors are increasingly concerne about the possibility of insolvency. In Asia, Inia has raise its operating rate for the secon time in 2018.

In the Asean 4, four major economies incluing Singapore, Inonesia, Malaysia an Philippines have ecie to tighten monetary policy while Vietnam an Thailan have not recore significant changes.

Concerning the internal risks, accoring to VSC’s research team, the strong rising inflation is irectly putting pressure on interest rates. After reaching the bottom in 2015, inflation has starte to recover an been rising over the later years. The high prices of crue oil an foos playe the ominant role in inflation evelopments. The trae tension with countries setting up tariff barriers are likely to push inflation higher.

In 2018, inflation is forecaste to be four percent, the highest since 2014. Currently, the iscount interest rate is only 4.25 percent per annum, own from 4.5 percent per annum in July 2017 while the eposit interest rates on terms from six to 12 months on the market are fluctuating aroun 6.5 percent per annum.

In aition to the inflation pressure, VSC’s report also state that the epreciation of the ong is also threatening the low interest rate policy of Vietnam. By mi-August 2018, banks’ exchange rate increase by 2.7 percent compare to the beginning of the year, while the reference exchange rate increase by 1.2 percent per annum compare to the beginning of the year. Notably, the free exchange rate sometime increase by nearly four percent.

While short-term lening rates in US ollar are aroun 2.8-4.7 percent per annum, the US ollar eposit rate is controlle at zero percent. In orer to enhance the attractiveness of keeping ong an to curb ollarisation in the economy, the ong eposit rates are often higher than the sum of the US ollar eposit rate an the ong epreciation level. This clearly shows the pressure on the ong lening interest rates.

 


Category: Finance, Vietnam

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