Dr Le Xuan Nghia, an economic expert, said that the reduction of the operating rate of the State Bank of Vietnam (SBV) had a positive impact on economic growth, the stock market, and real estate. This expert also expected, from then until the end of the year, SBV would have more rate cuts.
Why did SBV decide to reduce a series of operating rates at this time?
According to the expert, there were three reasons why SBV reduced operating rates.
The first was the impact from the outside. Recently, central banks of a number of countries had cut interest rates. Most currently on September 12, the European Central Bank (ECB) reduced deposit rates to minus 0.5 percent.
The second was that inflation in Vietnam was at a low level, even lower than expected earlier this year.
The third was that credit in the market shows signs of tension, and demand for credit was higher than supply. Many commercial banks were forced to raise deposit rates in various forms. Reducing interest rates meant that SBV increased money supply, increased lending capacity of commercial banks, and boosted credit. The expert thought that the move to reduce operating rates could be considered as a real monetary easing.
Did reducing interest rates have a spillover effect on market rates?
In Vietnam, the operating rate was not much related to the market interest rate, because the amount that commercial banks borrowed from SBV was not large. especially refinancing channel was almost inactive, only lending to the upcoming bankrupt banks.
Therefore, although the operating rate was reduced, the number of banks that can reduce interest rates was not high. Small banks still expected SBV to adjust the operating rate more from then until the end of the year.
The expert thought, that the operating rate dropped would have a positive impact on the market, helping credit increased by about 16 percent to 17 percent that year. Currently, looking at the real estate market and corporate bond mobilisation activities recently, credit was quite stressful.
How did the expert assess the impact of the reduction of operating rates on the market in general?
Operating rates decreased by 0.25 percent almost had no impact on the market but created a space for the SBV to adjust policies easily, and this also had a positive impact on market sentiment.
Lowering the operating interest rate brought the expectation that credit growth would be better, thus contributing to keep the Gross Domestic Products (GDP) growth rate. Besides, some markets also ‘followed’ as the stock market would be more positive; the real estate market also had the opportunity to increase supply.
Were interest rates fall, the money supply increases, inflation ominous?
Inflation in our country was not at risk of any warning. In the world, inflation was also at a low level. The most important factor was that the price of gasoline was going down again and many people were concerned, the era of oil prices over $60 per barrel had ended. Regardless, the truth about a cyclical crisis was approaching.
Many global experts predicted that the US GDP would likely decline to one percent to 1.5 percent, the Japanese GDP would return to zero percent to 0.5 percent, that of Europe would be less than one percent, and the Chinese one was 5.5 percent to six percent in the next few years. A cycle of crisis was coming, combined with the US-China trade war that would make the situation even more difficult. The very bad signal was that global trade growth was slower than global GDP growth (global trade growth of 1.7 percent, while global GDP growth was 2.5 percent). That situation only occurred during the world economic crisis since last year. Consumer demand was very low, and many countries could not reach it despite all means.
In Vietnam, the situation was not so serious like in other big countries, the consumption psychology of Vietnamese people was still very optimistic. For example, from the beginning of the year until then, car imports had increased by a record. However, the afore-scenario was also essential to anticipate to cope.
