Economist Dr Le Xuan Nghia assessed that the State Bank of Vietnam (SBV)’s operating rate reduction has a positive impact on the economic growth, the stock market and real state. He also expects that the SBV will have more rate cuts from now until the end of the year.
According to Dr Nghia, there are three reasons for the SBV to cut operating rates at this point of time.
The first reason is external impacts. In the recent time, the central banks of many countries have cut interest rates. Most recently, on the European Central Bank (ECB) cut deposit rates by 0.5 percent.
The second reason is the low inflation in Vietnam, even lower than expected earlier this year.
The third reasons is the credit tension in the market, in which demand for credit is higher than supply. Many commercial banks have had to raise mobilisation interest rates through various forms. Reducing dong interest rates means that the SBV increases money supply and raised lending capacity of commercial banks thereby boosting credit. Dr Nghia believed that the cut in operating interest rates can be considered a real monetary easing.
Regarding the question on whether the operating rate cut has a spillover effect on the market rates, Dr Nghia shared that in Vietnam these two types of rates are not very much related, because the borrowings of commercial banks from the SBV is insignificant, particularly refinancing channel is almost inactive and loans are mostly for banks which are about to go bankrupt.
Therefore, although the operating rates are lower, the number of banks which may reduce interest rates is modest. Small banks still expect the SBV to further adjust operating rates from now until the end of the year.
Dr Nghia thought that the impacts on market will only positive if operating rates are further reduced, helping credit to increase by about 16-17 percent this year. Currently, looking at the real estate market and the mobilisation of corporate bonds in the recent time, it can be seen that credit is fairly stressful.
Dr Nghia said that the 0.25 percent reduction in operating rates almost does not influence the market, but creates a room for the SBV to easily make policy adjustments. This at the same time positively affects market sentiment.
Operating rate reduction brings the expectation of a better credit growth, thus contributing to keep the GDP growth rate. In addition, some markets also benefit, such as the stock market and real estate market.
Talking about whether the interest rate cut and money supply increase raise concern about inflation, Dr Nghia said that the country’s inflation is not currently at risk. In the world, inflation is also at low level. The most important factor petrol prices is going down, and many people worry that the era of oil prices being over 60 US dollars per barrel has ended. Not to mention, there is a fact that a crisis cycle is approaching.
Many researchers in the world predict that the US GDP will likely to decline to one 1.5 percent, while that of Japan will be zero 0.5 percent, of the Europe will be less than one percent, and of China will be 5.5 six percent in the next few years. The coming crisis cycle, and the US-China trade war make the situation more difficult. The very bad signal is that the global trade growth is slower than global GDP (1.7 percent and 2.5 percent, respectively). This was only seen in the global economic crisis periods occurred from last year until now. The consumption demand is very low and many countries are unable to stimulate it despite all means,
In Vietnam, the situation is not as serious as in big countries. The consumer psychology of Vietnamese people is still very optimistic. For example, from the beginning of the year until now, car import has increased significantly. However, Dr Nghia believes that we also need to anticipate the scenarios to timely respond.
