(DTCK) That was shared by Ngo Dang Khoa, Country Head of HSBC Vietnam Money and Capital Market Division with Securities Investment Review Newspaper.
Looking back on the agency’s interest rate policy in the first 6 months of 2020, how did Khoa forecast the final months of the year to be run?
After the shock of economic downturn in the first half of the year due to the impact of the epidemic, the world economies were gradually restarting at different speeds and Vietnam had not been an exception.
However, thanks to its superior disease control capacity, Vietnam was showing stronger recovery momentum and a leading prospect of economic recovery in the region and throughout Asia.
In fact, although the gross domestic product (GDP) in Q2/2020 only reached 0.4%, which was the lowest in history, resulting from the decline in growth of a number of pillars such as retail, tourism, industry and export, but signs of economic recovery in Vietnam was increasingly clear by the recovery of retail data.
Besides, the tourism industry was also expected to recover strongly when Vietnam re-opens its borders.
In the context of low economic growth due to the impact of the epidemic in the first months of the year, monetary policy had played a major role in supporting the domestic economic recovery.
After reducing a series of executive rates and the dong deposit ceiling in March, the State Bank of Vietnam (SBV) continued to lower many types of executive interest rates from May 13, 2020.
Therefore, SBV lowered the operating rate twice for only three months. This movement was appropriate when many central banks around the world had implemented quantitative easing measures and sharply interest rates cut to support the economy passing the recession.
For the domestic market, maintaining interest rates at a low level helped reduce lending interest rates and supported businesses to overcome difficulties.
Currently, with the context of stable money and foreign exchange markets, inflation was likely to be controlled under the target, interest rates were expected to continue to be stable, and monetary policy was flexibly regulated to continue supporting the recovery of the domestic economy.
As above, Ngo Dang Khoa said that interest rates were expected to remain stable in the last months of the year, the story here was that credit was expected to prosper in the coming period. So, could liquidity maintain the abundance as in the first six months of 2020?
Currently, liquidity in the interbank market was still plentiful, interest rates had been almost flat in record low levels in the past four years.
The liquidity was strongly supported, from the previous 100 trillion dong of treasury bills, SBV lowered a series of operating interest rates to bring the interest rate level down, along with the credit growth in the first six months at a very low level compared to the same period last year due to the influence of Covid-19.
Looking at the last six months of the year, market liquidity seemed to continue to be stable to support the recovery of the economy, along with the basic scenario of difficult credit growth to rebound rapidly during the short-term period, especially when the non-performing loan rate (NPL) tended to increase compared to the same period last year.
In addition, the USD/VND exchange rate tended to fall sharply to near the SBV’s buying price. Also, inflation was expected to stay under control, contributing to stabilising liquidity in the system in general.
Regarding the foreign exchange market, the exchange rate trend might maintain stability in the last two quarters of 2020, but it would not exclude a more negative scenario.
About this issue, the expert shared, exchange rate on the interbank market after peaking at nearly 23,650 VND/USD in March, when Vietnam applied social spacing, had then dropped quite sharply to 23,180 VND/USD, close to at the buying price of SBV (23,175 VND/USD).
The downward trend of exchange rate was due to both internal and external factors. In the world, the stable yuan and the weakening of US dollar had supported the dong. In the country, some main factors affecting the exchange rate trend over the past time were followings.
Firstly, the inflation momentum starting from the end of 2019 tended to slow down in recent months, bringing the government’s inflation target below four percent this year more likely to be under control, thereby reducing the dong devaluation pressure.
Secondly, expectations of foreign capital were still positive for Vietnam’s position, with good disease control capabilities and the advantages of being attractive destination for foreign investors, especially in the context of other countries gradually reducing its dependence on China, the foreign direct investment (FDI) capital was expected to recover strongly.
Thirdly, the flexible exchange rate policy, reflected by the SBV’s lowering of the selling price at the end of March, also committed to being ready to support when the exchange rate showed signs of hot rise, contributing to meet the Market expectations.
The dong after a volatile period in Q1/2020 with the depreciation of up to one percent had gradually regained stability from the beginning of Q2 to the present. The above-mentioned factors were expected to continue to be the main factors driving the exchange rate trend in the last months of the year. From this, it could be predicted that the exchange rate trend would continue to maintain stability.
However, the scenario of exchange rate might still be negatively affected when facing many factors such as weak global demand affecting exports, especially for goods such as textiles and garments and Vietnam’s mobile phone exports, in addition to less capital inflows into the manufacturing sector, or a sharp drop in remittance revenue.
Nevertheless, overall, with foreign exchange reserves rising to a record high of approximately $81 billion, the regulator had the tools and flexibility to stabilise the money market.
