Interest rates to increase slightly in 2019

23-Oct-2018 Intellasia | Dau tu Chung khoan | 6:00 AM Print This Post

Due to the impacts of many domestic and foreign factors, the level of deposit rates may rise in 2019, however, the increase is expected to be not too much.

Inflation this year is forecasted by economists to be controlled at four percent, but it may rise to 4.5 percent next year.

Interest rates and inflation are closely related to each other and according to The Hongkong and Shanghai Banking Corporation (HSBC) experts, the dong interest rate will be difficult to keep the current stable level next year.

“Inflation next year is likely to be higher than the current level, coupled with the pressure from the Federal Reserve System (Fed) raising interest rate will put pressures on banks’ deposit rates”, said Pham Hong Hai, general director of HSBC Vietnam.

In fact, recently, interest rates of commercial banks have increased slightly since the State Bank of Vietnam (SBV) has actively raised interest rates to cope with the appreciation of US dollar due to tightening monetary policy of Fed and the impact of the global trade war.

Another factor affecting the interest rate over the recent time, and in 2019, according to Hai, is SBV’s policy to tighten the ratio of short-term capital used for medium and long-term loans from 45 percent to 40 percent since the beginning of 2019.

Specifically, credit has soared in the past time, but most banks’ mobilised capital is short term. Therefore, banks have to raise long-term deposit rates in order to mobilise medium and long-term capital to balance capital sources to meet the requirement. The mobilising interest rate in 2019 is forecasted to increase by 0.75 percent per annum (p.a.).

Securities analysts also agree with this view. Viet Dragon Securities Corporation (VDSC) commented that the dong interest rates could increase slightly in 2019 due to both domestic and foreign risks.

About external risks, VDSC stated that more tightened monetary policy is directly increasing the cost of borrowing globally after a decade of being loosened.

In the United States, Fed can raise interest rate one more time at the end of 2018 when the inflation is approaching the target. Fed’s operating interest rate is expected to reach 3.5 percent p.a. in 2019.

Meanwhile, VNDirect Securities Corporation (VNDirect) stated that SBV is targeting to tighten monetary policy and base interest rates will rise in 2019.

There are two main reasons for the recent increase in deposit interest rates, according to VNDirect. The first reason is SBV’s tightening the use of short-term capital for medium and long-term lending from 2019.

The second reason is that in the first half of 2018, some major banks reduced deposit interest rates to abnormally low level due to excess liquidity, thus, with the current tightening liquidity, banks have to raise deposit interest rates.

On the other hand, with the issuance of Directive No. 04 to strictly control credit growth, SBV has recognised the need to take measures to prevent increasing risks.

VNDirect estimates that base interest rate will increase by 50 basis points in 2019, raising the discount interest rate and rediscounting interest rate to 4.75 percent p.a. and 6.75 percent p.a. respectively.

In other perspective, Dr Tran Du Lich, a member of the Economic Advisory Group of the prime minister noted that, currently businesses’ capital mainly depends on banks with 80 percent of credit sources for businesses coming from commercial banks.

The stock market only provides 20 percent of capital for businesses. This situation is completely different from other countries in the world. This is also the reason why the credit growth in Vietnam is always high, with 15-16 percent p.a.

To reduce interest rates, according to Dr Tran Du Lich, the measure that is being considered is to amend the regulation on the issuance of bonds on the stock market and to establish the corporate bond market.

If this cannot be implemented, when inflation exceeds the plan rising interest rates, businesses will find it difficult to resist the pressure of interest rate leading to losses and shutdown.

 


Category: Finance, Vietnam

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