SBV rate cut shows minor impact on the market rate

20-Sep-2019 Intellasia | VnEconomy | 6:02 AM Print This Post

As VnEconomy reported, since September 16, refinancing interest rate, rediscount interest rate, overnight lending interest rate in inter-bank e-payment and capital shortage compensation loans in the clearing of the State Bank of Vietnam (SBV) for banks began to fall by 0.25 percentage points.

According to statistics from SSI Securities Company, unlike the differentiation in interest rate adjustment in 2018, from the beginning of 2019 until now, the trend of lowering interest rates has a high consensus when the number of rate cuts of Central banks around the world is on the rise. “There have been 93 times of downward adjustment and nine times of rate hikes,” SSI statistics showed.

In particular, the increasingly intense US-China trade war has reversed the operating policy of the US Federal Reserve (FED), which once lowered interest rates for the first time in more than a decade and is more likely to continue to lower in the future.

In contrast, the People’s Bank of China (PBOC) also cut the reserve requirement ratio seven times, adjusted the mechanism to increase the effect of interest rate adjustment and devaluate the yuan (CNY) to support the economy.

Meanwhile, in the country, the macro-economy continued to be stable, the economic growth in the first six months was 6.76 percent; inflation was controlled in line with the target (on average, in eight months of 2019, CPI inflation increased by 2.57 percent; and core inflation rose by 1.9 percent).

In addition, the monetary and foreign exchange markets have been stable thanks to the highest level of foreign exchange reserves (about $70 billion); eight-month accumulated trade balance has a surplus of $5.1 billion. By the end of August, $11.96 billion of FDI capital was disbursed. Some large capital flows can be seen coming in the near future, such as the capital sale of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) and the remittance season.

Talking to Pham Thanh Ha, director of the Monetary Policy Department about the reduction of executive interest rates, he said: “In the previous period, in the context of rising international interest rates, SBV implemented monetary policy solutions to stabilise interest rates, contributing to macroeconomic sustainability and supporting reasonable economic growth. In the current context, SBV reduces interest rates to continue promoting the economy and liquidity for credit institutions.”

Currently, SBV operates the monetary policy directly through the credit growth target and growth of total means of payment (M2), not through intermediaries, such as regulating rates, like other countries. Therefore, the research team at SSI assessed that the impact of interest rate adjustment was not too large.

Statistics showed that, by the end of June 2019, M2 and credit growth grew by 7.36 percent and 7.11 percent respectively, both lower than the same period in 2018. Although recently, the operator has extended a credit growth limit for qualified banks but that growth is still lower than the commercial bank’s proposal and the industry’s overall growth is still oriented at about 14 percent.

Looking back on the reduction of interest rates from the operator, the interbank interest rate and short-term government bond yields in the secondary market are the most affected. And under ideal conditions, cheaper capital costs in the interbank market (liquidity environment is also expected to be abundant) will create a basis for commercial banks to adjust rates in the market I.

“However, inter-bank capital only meets short-term capital needs, is not used for credit and is limited by the rate of 20 percent compared with mobilised capital of economic organisations and residents, so the interconnection from market II to market I will take time”, the company emphasized.

Recently, commercial banks with weak liquidity have pushed up deposit rates quite high, widening the gap with deposit rates of state-owned commercial banks and large private commercial banks.

However, SSI assessed that over 70 percent of mobilising and lending market share, state-owned commercial banks and large private commercial banks played a decisive role in the general interest rate trend of the market I.

In the context of many favourable factors, SSI believes that the technical measures of SBV, if there is consensus of large commercial banks, the goal of reducing interest rates can still be achieved without easing or pumping money into the economy.

On the side of the operator, when asked about the interest rate movements from now to the end of the year, the director of the Credit Department said: “With the current optimistic domestic macro-economic background, the interest rates basically will be stable, supported by positive factors such as guaranteed system liquidity, credit excess and increase in line with the orientation targets.

In addition, the trend of central banks of countries no longer pursues tight monetary policy like the previous period helps reduce pressure on domestic interest rates. SBV decreases the operating interest rates to help credit institutions have access to capital from SBV at lower costs, supporting stabilising interest rates of credit institutions”.

 


Category: Finance, Vietnam

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