In the end of last week, the US Federal Reserve (Fed) announced to raise short-term basic interest rate by 0.25 percent percentage point to 1.75-2 percent per annum. It is forecasted that the Fed is likely to raise interest rates by two more times in 2018 and three times in 2019. Before the move to tighten monetary policy of the Fed, Vietnamese banks’ leaders said that they are ready to respond. Talking to Dau tu Chung khoan, Do Ngoc Quynh, director of BIDV’s Treasury Department said that the monetary policy tightening process of the Fed is happening at faster and stronger speed (2015: one time, 2016: one time, 2017: three times, and 2018: expected four times).
Quynh further analysed that the Vietnam’s economy still has a stable macroeconomic outlook according to independent evaluations of many international credit rating agencies such as Fitch or Moody’s. The government’s policy is also steadfast in the economic restructuring process, macroeconomic stabilisation and growth quality improvement. In addition, as a characteristic of Vietnam’s financial market, the proportion of the “hot” capital flows of foreign investors is much lower than other countries. “Thus, the impact of the Fed’s monetary policy tightening on Vietnam is somewhat less significant than on many other emerging countries”, said Quynh.
According to Le Quang Trung, general director in charge of VIB’s Treasury Division, as there have been fairly firm forecasts of the Fed’s interest rate hike, there are not many shocks to the Vietnam’s banking system. In addition, along with the good preparation of Vietnamese banks for the anticipated information, the ratio of USD loans on total loans of banks is very limited. Thus, there is almost no interest rate risk on the foreign currency lending portfolio. Trung added that “the modest increase of foreign currency outstanding loans and low proportion of USD loans on total loans of the banking system are because VND and USD interest rates are close in short-term loans to good enterprises”.
Meanwhile, Ngo Dang Khoa director of Currency Trading and Capital Market at HSBC Vietnam said that the interest rate increase of the Fed does not significantly affect FDI flows as these are long-term investors, the impact is mainly on short-term interest rates. The long-term interest rates of the Fed is still 2.8 percent per annum, and the major investors in Vietnam at present are mainly from South Korea who are not very sensitive to US interest rates. According to Khoa, the Fed’s interest rate hike also does not considerably influence remittances. The higher interest rates of the Fed do not immediately lead to high savings interest rates, especially when the increase level this time is lower than the past times.
Despite assessing that the direct impact of the Fed’s interest rate hike on the Vietnam’s economy is insignificant, VIB’s Treasury Division director Trung also said that the indirect impact is possible, because smart capital will modestly flow into emerging markets and will return home. The increase of USD interest rates will lead to the rise of the US government bond yields. At that time, the smart capital will limitedly flow into Vietnam.
Director of BIDV’s Treasury Department -Quynh- said that in the near future, the Fed will continue to tighten monetary policy as the agency projects to raise basic interest rates by two more times in 2018 and three times in 2019. Together with the increasingly uncertain factors in such as trade warfare and geopolitical tensions, etc., there will be greater difficulties for the Vietnamese economy and that will be a real challenge to the governance of the government as well as the operation of commercial banks on issue such as exchange rate appreciation, inflation rise, interest rate increase, and public debt increase, etc.
“Concerning the issues of inflation, exchange rate or interest rates, the monetary policy of the central bank should continue to promote flexibility and sensitivity of the past period, closely coordinate with the fiscal policy so that Vietnam can maintain its achievements in controlling inflation, stabilising foreign exchange market and gaining market confidence. For the operation of the banking system in general, we will closely follow the general direction of the management agency and be active in analysing and forecasting activities in order to have appropriate moves in business operation”, said Quynh.
