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Central bank loosens monetary policy to meet growth target

Luu Hao
Tuesday,  Jul 11,2017,23:58 (GMT+7)
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Central bank loosens monetary policy to meet growth target

Luu Hao

A Vietcombank staff handles stacks of Vietnamese dong banknotes. The State Bank of Vietnam (SBV) has loosened its monetary policy by cutting a number of policy interest rates - PHOTO: UYEN VIEN

HCMC – The State Bank of Vietnam (SBV) has loosened its monetary policy by cutting a number of policy interest rates by 0.25 to 0.5 percentage points to help inject cash into the economy and thus fuel growth.

The refinancing, rediscount and overnight electronic interbank lending rates were revised down by 0.25 percentage points from on July 10.

The rate for loans used to offset shortages in clearing between the SBV and commercial banks was slashed by 0.25 percentage points while the rate for short-term Vietnamese dong loans offered by credit institutions to some sectors was adjusted down by 0.5 percentage points.

Earlier, there were signs that the SBV would ease monetary policy. As a rule, in the final week of June, banks often boost liquidity to secure safety, especially listed banks, as they prepare to announce first half audited financial reports. Some lenders may raise interest rates to lure depositors, thus improving total assets.

However, this year is different. DongABank, one of the banks which are under surveillance, have reduced deposit rates for most tenors, with the one-month rate down from 5.4% to 5% a year. At other banks, the six-month deposit rate is 5.6-6% a year, down from 6.5-6.6% three months ago.

On the inter-bank market last week, interest rates in Vietnamese dong fell 50 to 80 percentage points for tenors of overnight, one week and one month. The overnight rate tumbled to the lowest in months at only 1.65% a year.

Strong liquidity was the main reason. The central bank purchased a large volume of foreign currency in June after it had raised the dollar buying price by VND50 to VND22,725. Instead of directly injecting money into the system via open market operations (OMO), the SBV supplied the dong through dollar purchases.

According to the central bank, Vietnam’s foreign reserves soared to a record high of US$42 billion in end-June, up US$1 billion versus early this year and double that in 2008 when the global financial crisis took place.

Local banks last week quoted the dollar selling price for transfer at VND22,770 to VND22,780 a dollar, up around VND50 compared to a month ago. The move followed the central bank’s intentional adjustment while the market still maintained a supply-demand balance.

Keeping Vietnamese-dong interest rates low and flexible in a certain period or revising them by one to two percentage points a year for overnight and other tenors will help banks buy foreign currency from businesses and sell it on to the SBV while speculation is prevented.

The recent rate cut is also the outcome of the 0.2% rise of inflation in the first half compared to late last year. Speaking to the Daily, most banks said the input capital cost declined against the same period last year.

The lending rate reduction by 0.5 percentage point will also influence business results, thereby cutting product prices and raising the purchasing power of consumers. For instance, Hoang Anh Gia Lai Company, which still owes around VND22 trillion to banks, will see its interest falling by hundreds of billions of dong a year.

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Giấy phép Báo điện tử số: 321/GP-BTTT, cấp ngày 26/10/2007
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