According to the report of Viet Dragon Securities Company (VDSC), in the first six months of 2020, there were abnormal changes in monetary indicators, including increasing money supply, credit growth and deposits due to the impact of the Covid-19 outbreak.
Supply growth has gradually increased and remained at approximately five percent compared to the end of 2019 on June 20, 2020, although this figure was lower than the level of 7.1 percent in the same period of 2019. The trade was better than expected, reaching $4 billion in the last six months, causing the State Bank of Vietnam (SBV) to absorb the US dollar supply. Meanwhile, credit growth was only half the growth of the money supply.
On the positive side, credit growth had increased by nearly 1.3 percent over the past 30 days. That raised hopes for promising credit disbursements for the remaining half year. VDSC analysts forecasted credit growth in 2020 to reach nine percent to 10%.
The current gap between money supply growth and credit growth explained why the interbank offered rate suddenly dropped and marked the lowest point in history, 0.12 percent on July 2, 2020. This has been maintained for nearly two months, VDSC said.
Another highlight was related to the strange changes in deposit growth, which had been almost flat since the end of April. While private deposits increased by 3.7 percent compared to the beginning of the year, corporate deposits decreased by 4%. Notably, deposit growth soared significantly in May and June, at 4.4 percent at the end of June. While deposit growth in the northern provinces/cities increased steadily, in the south, there were many fluctuations. Typically, deposit growth in Hochiminh City accounted for nearly 30 percent of the total national deposit, remained flat at the end of April before skyrocketing a month later and reaching 1.8 percent compared to the beginning of the year. Most of the increase came from the business sector, which increased by 3.6%. This was in contrast to the negative growth of 3,5 percent as of April 30, 2020.
The shallow deposit growth in the first four months of 2020 was related to pessimistic forecasts about the impact of Covid-19. This motivated businesses to maintain a high amount of idle cash to protect their business from unprecedented risks. However, recent economic data implied a brighter outlook for economic recovery, fears were fading, and money was returning to the system.
VDSC believed that the large gap between deposit growth and money supply growth would no longer exist in the second half of 2020. In the context of the economic restart, governments, including Vietnam, would have to observe the effect of easing fiscal and monetary with the economic recovery before making any easing. Although SBV was distributing the credit limit among commercial banks, there was a likelihood to cut interest rates. At present, VDSC emphasized that central banks then prioritised financial stability more than pricing stability. This meant the interest rate cuts were promising to restart the economy, VDSC said.
Regarding inflation, the overall consumer price index (CPI) and the base CPI was at 4.2 percent over the same period last year and 2.8 percent over the same period in the first six months of this year, higher than the same period the previous year. Although inflation had put considerable pressure on policymakers, experts believed that inflation would soon be well controlled.
