Illustrative image (Photo: VNA)Hanoi (VNS/VNA) - The State Bank ofVietnam (SBV) buying net 4 billion USD in January may be the way to lowerVietnamese dong lending rates.
To achieve such a result, the central bank in lateNovember 2018 sold greenback futures that would be delivered in late January2019 to raise the market supply of dollars, vneconomy.vn reported.
Then on the first working day of 2019 (January 2),the central bank for the first time in a year raised its purchasing rate by 500VND to 23,200 VND for a dollar from the last-day rate of 2018.
As of December 31, 2018, the purchasing rate for aUS dollar set by the SBV was 22,700 VND. The rate was cut by 10 VND on February8, 2018.
In addition to the two technical measures, thecentral bank also increased the gap between Vietnamese dong anddollar interest rates on the interbank market, making Vietnamese dong moreattractive for savings and thus balance the foreign exchange rate with thedollar.
After a month, the central bank was able to lure ahuge amount of US dollars for its reserves, proving the supply of foreigncurrency in Vietnam had been great and consolidating and helping transform apart of foreign currency held in the economy in recent years.
But the SBV may not stop buying dollars from themarket, not only to increase its foreign reserves but also to lower the dong lendingrates.
Buying 4 billion USD means the SBV had to inject ahuge amount of Vietnamese dong into the market, which would helpbalance the market demand-supply during the Tet period – the peak season formaking payments – and create additional supply of cash for lenders – whoaccepted mortgages from borrowers.
Local commercial banks have recently cut their dong-basedlending rates. For example, the Joint Stock Commercial Bank for Foreign Tradeof Vietnam (Vietcombank) on January 9 cut its lending rate for short-term loansby 0.5 percent to 6 percent.
Vietnamese dong-based interest rates havebeen kept more attractive than the dollar-based ones, raising expectations thatcash would flow back into commercial banks after the festival was over, andthus, easing the lending rates among commercial banks.
Between late 2018 and late January 2019, dong-basedinterbank offered rates kept increasing to 5.19 percent per year, twice thedollar-based offered rate on the same market.
Between commercial banks and individual andinstitutional clients, dong-based offered interest rates showed signs ofincreasing to 8.5-8.7 percent per annum for long-term savings.
In 2018, many central banks had to increaseinterest rates and depreciate domestic currencies to deal with the strongerdollar and the outflow of foreign capital.
During last year, the global markets became usedto the Federal Reserve’s rate increase plan as it reflected the “hawkish view”of Fed officials, strengthened the dollar against other currencies and resultedin the outflow of foreign capital from emerging markets.
On January 30, the Fed signalled it may stopraising rates and global analysts saw that could be the end of the rate hikeplan. And it may even mean the Fed would cut rates if needed.-VNS/VNA
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