The capital market report of the Research team of Saigon Securities Incorporation (SSI Research) showed that the State Bank of Vietnam (SBV) cut the Treasury bill interest rates to 2.75 percent per annum on seven-day term, down by 25 basis points compared to the three percent per annum which was maintained from October 10th 2018.
According to the report, since Treasury bill has been the main channel on the Open Market Operation (OMO) in the last four months, the reduction of bill interest rates will stimulate market members to pour money into the economy instead of transferring it to the SBV. However, from the end of 2015, although the Fed has continuously increased interest rates, the bill and OMO interest rates of the SBV have still been kept stable and the OMO rates at some points of time were even cut to very low level of less than one percent per annum.
SSI’s director of Investment Analysis and Consultancy (SSI) said that such developments show that Vietnam’s monetary policy has been operated fairly flexibly rather than rigidly in one direction of tightening or loosening. The target is to keep money stability, be cautious in regulating cash flows and control credit quality.
Thus, financial analysts said that if the US Federal Reserve (Fed) cuts interest rates in the end of the year as expected, it will not cause too much impact on the monetary policy of the SBV and only make the implementation of policies more favourable thanks to the less exchange rate pressure.
Some opinions said that the SBV has recently made a new move to loosen the monetary policy by adjusting the credit limit for numerous banks.
The continuous interest rate cut of the Fed in the recent time has positively influenced the foreign exchange market as well as lessen the exchange rate pressure. The SBV has gradually restricted foreign currency loans and switched to buying-selling instead of borrowing-lending of foreign currency as before.
On November 18th, the SBV announced the central dong/US dollar exchange rate at 23,140 dong per US dollar, down by six dong compared to the session in the end of the last year. The reference buying and selling rates at the SBV were respectively 23,200 dong per US dollar (unchanged) and 23,788 dong per US dollar (down by one dong per US dollar compared to the previous week). For commercial banks, the dong/US dollar exchange rate at Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) went up by five dong per US dollar compared to the end of last week, popularly raging at 23,145 23,265 dong per US dollar (selling-buying).
A financial expert said that for the dong/US dollar exchange rate, the immediate impact of the Fed’s latest interest rate cut is not significant because the Vietnam’s foreign exchange market is basically stable (thanks to the stable supply-demand relation, fairly abundant market liquidity, increasing foreign exchange reserves, etc.). However, according to this expert, enterprises still need to monitor closely, because the changes in the international foreign exchange market will have a certain impact on the dong/US dollar exchange rate. In the medium and long-term, the dong/US dollar exchange rate will mostly depend on the macro factors such as the Gross Domestic Product (GDP) growth, overall balance of payments, trade balance, Foreign Direct Investment attraction, gold price, etc. and the strict management as well as appropriate actions of the SBV.
Experts of BIDV Institute of Training and Research forecasted that the possibility that the Fed cuts interest rates once again in 2019 is fairly high. This requires regulators and enterprises in Vietnam to closely monitor moves of the Fed and central banks of countries, as well as fluctuations on international financial market, and the US-China trade tension. At the same time, management authorities need to focus on increasing resilience, increasing buffer against external shocks, etc. to have flexible and timely response as well as appropriate monetary and trade policies, helping the economy and the financial-monetary markets develop stably.
Prof Dr Tran Hoang Ngan (HCM City National Assembly Delegation) said that this year, the SBV has operated a flexible and appropriate exchange rate policy, so the value of the currency has been kept stable and exports have been supported.
According to ProfDr Ngan, stabilising exchange rate is the most important stage to create confidence in the local currency and stabilise macro economy. From a market perspective, foreign currency supply and demand are the decisive factors for the exchange rate. Thus, there is currently no reason to devaluate the local currency.
