From the beginning of July until now, some central banks have cut interest rates, in the trend of monetary loosening expansion in the world. Specifically, the Reserve Bank of Australia continued to reduce the interest rates for the second time in a month. Reserve Bank of India lowered interest rates for the third time this year.
And since the beginning of the year, there have been a series of central banks in the world reducing interest rates in turn such as Iceland, Australia, New Zealand, Russia, Chile, India…, one of the measures of monetary easing to support economic growth.
Although no adjustment has been made, but in large and influential economies, after the decision to keep interest rates unchanged in the June policy meeting, the US Federal Reserve, the Bank of Japan, the Bank of England, the European Central Bank all have a signal to consider, even they are willing to reduce interest rates to maintain economic growth.
First of all, the above trend is shaping a reality that can be seen as suggesting a situation of reversing the interest rate policy of central banks around the world. Only in 2018, many monetary policy executives made a series of decisions to raise interest rates.
In the US, there were four times that the interest rates had been raised last year. The increase was quite frequent in 2018, which was also evident in emerging countries such as Argentina (up six times), Turkey (up three times), India (up twice), Philippines (up four times) and Indonesia (up six times).
Excluding bills with short-term and flexible characteristics, in 2018 Vietnam went backwards, when the State Bank of Vietnam (SBV) for the first time after nearly five years reduced interest rates in open market operation (OMO), a small step from five percent per year to 4.75 percent per year and maintained so far.
Backing a little bit more, on July 10, 2017, SBV reduced the operating interest rates including rediscount and refinancing interest rate by 0.25 percent per year and maintained it until now. SBV also decreased the lending interest rate ceiling by 0.5 percent per year for short-term loans in priority sectors.
Thus, in recent years, Vietnam has had a cautious interest rate policy, showing very few and small adjustment. Instead, the administration of monetary policy (linked to interest rates) in Vietnam is more inclined to regulate the quantity.
In particular, in recent years, SBV has been regularly and even standing at many stretching times, using issued bills to regulate capital in the system, the mortgage lending channel in the open market, foreign currency trading and the refinancing channel which has little specific information mentioned.
In particular, regarding the treasury bills, in the face of congestion in public investment disbursement in recent years, the excess capital in the system, along with the amount of dong offered to buy big foreign currencies in each period, SBV had to increase the issuance of bills to attract more money, diversify and even extend the maturity term many times.
And notably, the interest rate of bills has increased sharply. Specifically, it was only 1.2-1.8 percent per year depending on the terms in June 2018 and up to three percent per year with seven-year term from March 2019 until now. This type of interest rate is considered as a “block” for the interest rates in dong in the interbank market, a buffer for the difference with the interest rates in US dollar to indirectly balance the stability of USD/VND exchange rate.
The “pumpingsucking” activity through the treasury bills has so far played a key role. In addition, the balance of money is also reflected in the buying and selling activities in foreign currencies at some stages. SBV has bought foreign currencies for the purpose of extending the dong supply in the market.
With such a high inclination in terms of volume balance, Vietnam’s interest rate policy has been relatively stable so far, in the context of 2018, the trend of expansion widened at many central banks around the world. Currently, the reversal situation has been expected after the aforementioned series of cutting decisions.
