In a newly released report, the Analysis Division of SSI Securities Corporation (SSI Research) said that the increasingly tense trade war with China had reversed the operating policy of the US Federal Reserve System (Fed). The rate hike ended and the agency lowered the interest rate (25 percentage points) for the first time in more than a decade and is likely to continue to decrease further in this week’s session.
On the other side, the People’s Bank of China (PBOC) also continuously reduced the required reserve ratio (four times in 2018 and three times from the beginning of 2019), adjusted the mechanism to increase the effectiveness of controlling interest rates and lowered the yuan to support the economy.
Along with that, a series of uncertainties at economic locals across continents such as Germany, England, Japan, Korea, Argentina reduced the prospects of global economic growth.
According to SSI Research, unlike the divergence in the direction of interest rate adjustment in 2018, from the beginning of 2019 until now, the trend of lowering interest rates had a high consensus when the number of interest rate cuts of central banks in the world was on the increase. Currently there were 93 adjustments to reduce while there were only nine adjustments to increase interest rates.
Although lowering interest rates had spread, the State Bank of Vietnam (SBV) still managed the monetary policy prudently with the priority goal to stabilise macroeconomics (inflation, exchange rate…) and so far, this agency has successfully operated this variable, SSI Research assesed.
In particular, while the major currencies also fluctuated highly: some currencies depreciated up to nine percent (like KWR, SEK), some appreciated five percent to six percent (like RUB, THB), compared to US dollar, the dong had become one of the few currencies having stable exchange rates.
From the beginning of the year to now, the dong created a wave once from the end of April to the end of May, but at the peak of the wave, the buying rate of the bank only increased by only 0.84 percent compared to the end of 2018, at 23,360 dong per USD, then quickly decreased.
Even when the huge and sudden pressure came from USD/CNY exchange rate surpassing 7.0 and Chinese yuan continuously decreased up to nearly four percent in August 2019; dong remained flat, even fell and was currently at a lower level of 0.06 percent at the end of 2018.
According to SSI Research experts, at present, in addition to accumulated operating experience, many favourable factors would contribute to stabilising the exchange rate in the future.
Firstly, after two large foreign currency purchases in the first four months of the year and from July until now, foreign exchange reserves were then at the highest level ever, and according to SSI Research estimates, the number amounted to about $70 billion.
Secondly, the trade balance and foreign investment flows were going smoothly. The trade balance in August had a surplus of $3.43 billion, a record surplus for months in recent years, accumulated for eight months of 2019, a trade surplus of $5.1 billion.
The registered and disbursed FDI capital still increased steadily, by the end of August, there were $11.96 billion of disbursed FDI capital (up 6.3 percent over the same period). Indirect investment flows were also quite positive with the sale of large equity shares of VCB, VIC, VCM… and international loans from Vinmec, VPB… The overall balance was in a surplus of $9.1 billion in the first six months of 2019.
Thirdly, some large capital flows would come soon, such as Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV)’s capital sale and remittance season.
Besides, CPI till August increased by 1.87 percent compared to the beginning of the year and increased by 2.57 percent over the same period last yearquite low compared to the target of controlling inflation of four percent in 2019 due to the National Assembly proposed.
Therefore, SSI Research said that SBV had the basis to direct the operating policies to the goal of reducing interest rates.
