KBSV: Interest rates will bottom out in the first half of 2021

14-Jan-2021 Intellasia | NDH | 6:02 AM Print This Post

In the 2021 macro outlook report, KB Vietnam Securities mentioned to deal with the Covid-19 epidemic and to stimulate credit demand, the State Bank (SBV) decided to lower the operating rate 3 times in a row in December 3, May and October 2020 with a total reduction of 1.5 percentage points for the refinancing rate, as well as lowering the deposit rate cap below 6 months from 0.8 to 1 percentage point.

In addition, the SBV postponed to tighten the ratio of short-term capital for medium and long-term loans for another year so that banks would not be under pressure to restructure their capital sources in the context of having to support businesses facing liquidity difficulties. loans, through loan interest rate reductions, debt rescheduling and debt restructuring.

KBSV commented that on the whole, the monetary policy to deal with the Covid-19 pandemic of the State Bank is still lighter than other countries in the region and mainly uses resources from commercial banks (commercial banks). Therefore, the impact on the money supply is not as much as in other countries.

The policies are considered to be quite suitable for the economic conditions of the SBV, with a controlled easing nature in order to avoid the consequences such as bad debts and asset price bubbles as in the period 2009-2011.

The system liquidity in 2020 will remain plentiful, especially in the last 6 months of the year with the difference in M2 money supply and credit growth always maintained at a high level. According to KBSV, this movement is mainly due to the epidemic that made the demand for credit significantly weakened because businesses are facing many difficulties and have to narrow production and business activities.

The SBV buys foreign currencies to supplement foreign exchange reserves with an estimate of 15 billion USD, equivalent to pumping out nearly 350 trillion dong. Excess liquidity has caused interbank interest rates and government bond yields to remain low since May 2020.

Therefore, deposit interest rates also decreased by 1.5 3 percentage points. Lending interest rates decreased slightly, about 0.5-1 percentage points, mainly due to the request of a reduction from the State Bank to support businesses with post-pandemic difficulties.

KBSV forecasts that by 2021, monetary policy will maintain an easing state in order to continue to support businesses and households in difficulty. It is likely that the SBV will lower the operating rate once again in the first half of 2021, when the consumer price pressure is not a worry.

M2 money supply will increase slightly compared to 2020, expected to reach 14 percent and be within the range that the SBV maintains from 2018. This growth is considered to be enough to provide a large amount of money into the economy. (about 1.5 quadrillion dong) and did not put pressure on asset price bubbles.

The disadvantage in 2021 is that the tools to pump VND through buying foreign currencies are limited. In case of temporary shortage of liquidity, experts believe that the State Bank will most likely have to extend the maturity date on OMO (currently is 7 days).

Regarding credit, securities companies are expected to continue to recover in 2021, with an increase of 12-14 percent when indicators like IIP, PMI show that production is gradually recovering, as well as interest rates. lending has been at a low level for many years thanks to the policy orientation of the SBV. Credit is expected to recover rapidly in the second half of 2021, in a scenario where the vaccine is widely distributed across many countries to facilitate production recovery.

In terms of interest rates, up to now, the interbank interest rates and government bond yields have bottomed out so far, while the deposit rates have also dropped to the lowest level in the past 15 years.

KBSV forecasts that the interest rate level may bottom out in the first half of 2021, when the SBV lower the operating rate one more time and slightly increase again in the second half due to three reasons. Firstly, the channel to pump VND liquidity into the market is limited because the tools to buy foreign currencies are limited and can push up interest rates on the interbank market. Second, credit growth in the second half of the year will usually recover quickly. Thirdly, the roadmap to tighten the short-term deposit ratio for medium and long-term loans effective in October 2021 will boost the competitiveness of deposits and reverse the trend of declining deposit rates.

 

Category: Finance, Vietnam

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