Headquarters of the State Bank of Vietnam (SBV). Expansionary fiscal and loose monetary policies can be extended for another year when growth is considered a top priority. (Photo: sbv.gov.vn) In 2023, the SBV cut its policy interest rates four times.
Under a report released recently, analysts from Saigon SecuritiesCorporation (SSI) said the reason for the rate cut was that the domesticeconomic activity had not yet returned to its potential growth trend while 2024had been planned to be a breakthrough year for the Government’s medium-termgrowth plan in the 2021-2025 period.
Therefore, expansionary fiscal and loose monetary policies wouldbe extended for another year when growth is considered a top priority, theynoted.
The analysts forecast lending interest rates on existing loanscould decrease by another 50-100 basis points in the first half of 2024.
However, it would be difficult for deposit interest rates tocontinually decrease sharply, they said, forecasting 12-month deposit interestrates by the end of 2024 to be about 5.5% per year.
According to the analysts, the SBV’s monetary policy can continueto focus on specific and priority industries while still controlling creditgrowth of the banking industry at a reasonable rate of 14-15% to achieveoptimal growth, control bad debt and inflation. Well-controlled inflation willcreate more room for loosening monetary policy.
SSI’s analysts forecast inflation would be at 3.8% in 2024. In2023, headline inflation fell from around 5% to 3.5% in December 2023 thanks tosharp declines in energy and food prices. Core inflation was also weaker, whichshowed an easing pressure in demand.
It can be said that the risk of inflation in 2024 is not high, inthe context that neighbouring country China is facing deflation, according tothe analysts.
However, inflation risks can come from cost-push factors,including potential increases in crude oil and other commodity prices as wellas a rise in the Government’s minimum wages. Besides, another important factorto monitor for inflation in 2024 will be the readjustment of weights ofcommodities that are used to calculate the country’s consumer price index dueto be implemented in July or August this year.
Overnight rate
Data from the SBV showed overnight interest rate in the interbankmarket on Wednesday surged to more than 4%, the highest level in the past ninemonths.
The rate on the day increased to 4.14% from 2.15% at the end oflast week. It meant after just three trading sessions, the rate nearly doubledand reached its highest level since the end of May 2023. It was much higherthan the peak level of 2.38% recorded during the peak payment period near theLunar New Year.
With the surge, the rate for overnight term is currently evenhigher than that of one-week to three-month terms.
In the interbank market, overnight term accounts for up to 90% oftotal transaction value.
Along with the overnight term, interest rates at two other keyterms also increased sharply compared to the end of last week, of whichone-week term was up from 1.27% to 3.81%; two-week term was up from 1.39% to3.02%; and one-month term was up from 1.85% to 2.55%.
According to experts, the sharp surge of the overnight rate, alongwith high transaction turnover, means liquidity of the banking system isshowing signs of shortage, but it is only in the short term and it will likelycool down soon in the coming trading sessions.
Interbank interest rates have increased significantly after creditgrowth unexpectedly accelerated in the last month of 2023. In December 2023alone, credit of the banking system surged by up to 4.35% compared to theprevious month, bringing credit of the whole year to 13.5%.
Experts expect the sharp increase in overnight interbank interestrates will contribute to reducing pressure on domestic exchange rates when theUS dollar has strongly recovered in the international market. The greenback priceis currently listed at 24,390 VND per dollar for buying and 24,790 VND perdollar for selling, an increase of 190 VND compared to before the Lunar NewYear holiday.
In a newly released report, analysts from the VietcombankSecurities Company (VCBS) forecast the Vietnamese dong might still devalue against the dollar wheninterest rates continue to break deep into the bottom zone.
The development of the exchange rate would depend largely onforeign currency supply from direct and indirect investment cash flows, andremittances, VCBS analysts noted./.
VNA
