According to Bao Viet Securities Joint Stock Company (BVSC), Federal Reserve System (FED)’s latest move will make central banks of emerging markets more cautious in future interest rate decisions.
FED Chair did not confirm that the interest rate cut in July would start a cycle of cutting interest rates and make central banks in emerging markets more cautious in future interest rate decisions. Since the beginning of the year, when FED moved from tightening monetary policy to “pause mode”, many central banks in emerging markets made moves to cut interest rates in advance to counter the economic decline, such as India, Malaysia, Philippines, etc.
However, in the upcoming policy meetings, central banks of these countries will likely move to wait for the official decision of FED before making a decision on the interest rate policy of their country (instead of acting first as first half of this year).
In Vietnam, in the middle of July, the State Bank of Vietnam (SBV) also cut 0.25 percent of the bill interest rate, from three percent to 2.75 percent. This move was evaluated by many investors as a monetary easing policy. However, according to BVSC (HNX: BVS), in theory, this move might partly help encourage banks to increase lending more, help increase capital supply (because buying bills was not as high as before) but the actual impact would not great.
Unlike central banks of developed countries, the administration of Vietnam’s monetary policy is mainly credit limit and M2 money supply growth, not indirectly regulated through interest rate. The mechanism of using short-term interbank interest rate to lending rate in the market was also very limited.
In addition, despite the excess (expressed by low interbank interest rate), system liquidity did not represent the entire system. Liquidity among banks was still strongly divided, leading to high deposit rate. With current movements, BVSC believed that the interest rate level in Vietnam could be reduced in some priority areas, but it was difficult to establish a new lower interest rate level.
