The deposit and lending interest rate level has been continuously adjusted by the State Bank of Vietnam (SBV) since late 2019in accordance with the global trend. From the beginning of 2020 to now, due to the Covid-19 epidemic, the SBV has deeply lowered the operating interest rates by 0.25 one percent per annum. Compared to the end of 2019, the current lending rates to priority areas have fallen by 0.5 percent per annum to only 5.5 percent per annum. Meanwhile, the lending rates to other areas have also been massively cut by banks at a popular reduction of two to three percent per annum.
According to data of the International Monetary Fund (IMF), in January 2020, Vietnam’s lending rates were 7.7 percent per annum, equivalent to that of the Philippines and lower than some regional countries such as Indonesia (10.08%), Mongolia (16.81%) and Bangladesh (9.66%).
Governor of the SBV affirmed that in the near future, the SBV will continue to regulate interest rates in the direction of further reduction to support people and businesses.
“We will continue to closely monitor the liquidity of credit institutions (CIs) to have an appropriate plan for the Open Market Operation (OMO). In case the CI has difficulty in liquidity or needs to borrow for lending to priority areas, the SBV will consider refinancing,” said the SBV’s Governor.
The SBV’s head also said that in case of necessity, the SBV will make stronger adjustments to monetary policy to support the economy.
According to initial assessments of the SBV, about 2,000 trillion dong of outstanding loans have been hit by the Covid-19 pandemic (accounting for 23 percent of the total outstanding loans). However, thanks to the measures such as rescheduling debts, restructuring debts, reducing interest rates, maintaining debt group, offering new loans, etc. to customers hit by Covid-19, after slowing down in the first two months of the year, credit has regained its growth rate in March 2020. By the end of March, the credit growth of the entire system increased by 1.3%, in which for March 2020 alone, the credit growth was 1.1%. It is expected that the banking system will lend out 900 to 1,100 trillion dong of credit to the economy (increase by 11 14%), meeting all capital needs of the economy.
According to statistics announced by the SBV, up to now, Vietnam’s foreign exchange (forex) reserves have reached a record high level of 84 billion US dollars. Thus, compared to the end of 2019, the SBV purchased an addition of four billion US dollars in the first three months of 2020. This is unexpected because from the beginning of the year until now, the US dollar in the world market has been fluctuating very strongly but the SBV has not yet had to use the forex reserves to make intervention and even managed to purchase, while the foreign exchange in the domestic recorded a fluctuation of only 1.3 1.5%. Meanwhile, many local currencies in the world were adjusted by five to seven percent in the first months of the year.
The SBV’s Governor affirmed that the SBV has prepared many scenarios to cope to the domestic and international developments. In the first three months of the year, the foreign exchange was stable and only fluctuated by 1.3 1.5%, much lower than the volatility of the region and the world. Particularly, the system’s foreign currency liquidity was stabilised and all foreign currency demand of the economy was met.
“We believe that the SBV has sufficient tools and capacity to stabilise the exchange rate, especially when the forex reserves have reached 84 billion US dollars. The SBV is willing to intervene to stabilise the foreign exchange if there is unexpected market development. However, we still have not yet made any intervention from the beginning of the year,” said the SBV’s head.
In the coming time, the SBV affirmed to continue managing the policies more flexibly and actively to create a good macroeconomic foundation, because it is the key factor to increase the resistance of the economy. That is also the key foundation for the economy to recover stronger after the epidemic.
Strong forex reserves and stable macroeconomic foundation are the factors that many international organisations appreciate Vietnam. In a recent report, Fitch Ratings said that it would maintain Vietnam’s national credit rating and only adjust the long-term foreign-currency issuer default rating to stable from positive, due to the Covid-19′s impact.
According to Fitch’s explanation, that reflects Vietnam’s strong medium-term growth prospects, lengthening record of macro stability, lower government debt levels and stronger external finances compared with peers, including good source of forex reserves which were built up over the previous few years.
