Exchange Rates Turn Out To Be The Brightest Point

Recently, the State Bank of Vietnam (SBV) has continuously adjusted interest rate and exchange rate policies. To find out how the above changes impact banking activities in general and the economy in particular, the Bank Times reporter had an interview with PhD. Nguyen Tri Hieu a banking expert.

In your opinion, does the decision to reduce the compulsory reserve interest rate and surpass the compulsory reserve have a great impact on the bank’s business activities?

I think that the impact from the reduction of interest rate on basic deposit is quite small. Because the amount of current deposit at banks at SBV is only three percent, the reduction of 0.4 percent per year of the interest rate on current deposit rates in dong will not affect banks much. As for the interest rate on deposits that exceeds the compulsory reserve in dong is zero percent per year, I think that few banks are so generous that they have deposits exceeding the SBV’s requirement for the required deposit rates. Because if they have plenty of capital, they bring it to the interbank market for lending, the profitability is much higher. So I think that if SBV decreases further, it will not affect the banks’ profit. Deposits for compulsory reserve are more a bank’s responsibility than expected profitability. In the US, maintaining deposits as compulsory reserve is the duty of the banks, and they are not paid interest on these deposits.

How do you assess a series of adjustments to the interest rate policy of SBV recently?

I am not surprised by SBV’s interest rate adjustment decisions. As you know, although Vietnam’s macroeconomic indicators are still positive, the world economy is negatively affected by the US-China and Vietnam trade war is no exception. The Fed continuously lowered interest rates, other central banks also sharply reduced interest rates, so it was not surprising that SBV followed that trend in general. The move to reduce interest rates at the end of the year to reduce capital costs and support businesses, especially exporters, to boost production and business activities is appropriate.

I think SBV may want to lower interest rates sooner, but the anxiety to control inflation because inflation is always a great obsession of policy makers. Therefore, SBV must consider the time of loosening policies to both support the economy and ensure inflation control.

In your opinion, over the weekend, did SBV adjust the US dollar bid price?

Although this is rare at the end of the year, if observing the market, it can be seen that foreign currency liquidity is abundant from many channels. In regulating the exchange rate, in addition to paying attention to supply and demand of the market, SBV must keep an eye on many other factors to regulate such as exports. So, SBV reduces the bid price of US dollar is also normal. This helps SBV take advantage of buying more foreign currencies to supplement the foreign exchange reserves at lower prices, thereby, saving costs for the state.

So how do you assess the exchange rate movements in the near future?

It must be affirmed that the exchange rate is the brightest point in the picture of banking activities from the beginning of the year until now. Vietnam’s exchange rate remained stable in a narrow range before international market volatility was surprising. In addition to the objective supporting factors, I think, SBV has succeeded in managing the exchange rate policy to keep the dong value stable. With less than a month left to end 2019, I think the exchange rate will continue to be stable.

Entering 2020, the pressure on exchange rate management is still existing as the US-China war has not ended, tensions can come back anytime, Vietnam’s export situation has not been clear. But, if the world situation does not fluctuate too strongly, with the tools of monetary policy, the dong is getting stronger and the economic growth will be positive. I believe, SBV will still be able to keep stability of exchange rates in the near future.


Category: Finance, Vietnam

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