State Bank says successful in easing monetary fears

VietNamNet Bridge - Interest rates and foreign-currency exchange-rate concerns in the market have been eased thanks to a series of measures taken by the State Bank of Viet Nam to stabilise the country’s monetary market.

According to statistics released by the State Bank of Viet Nam (SBV), interest rates for deposits in dong issued by State-owned commercial banks last week hovered around 17-18 per cent per year, and those issued by joint stock commercial banks stayed at 18-18.5 per cent per year.

The rates offered by commercial banks in the first week of the month are more realistic than those offered at the end of June. The record high deposit interest-rate of 20 per cent per year dropped to 19 per cent per year.

The interest rate for dong loans with less-than-one-week periods in the inter-bank market last week was also decreased. The overnight interest rate is now at 17.43 per cent per year and the rate for one week loans is at 19.85 per cent per year. However, interest rate for two-week deposits underwent a slight increase, reaching 20.59 per cent per year.

The State bank also said that performance in the foreign exchange market was increasingly better matched to actual supply and demand in the market after the SBV decision to double the daily trading band for US$/VND exchange rate to +/-2 per cent against the inter-bank rate. The State Bank Governor’s regulations to correct foreign currency trading activities have been issued and put into effect.

On July 2, the VND/US$ exchange rate among commercial banks varied from 16,840 to 16,848, 1.35 per cent higher than that offered before the decision was made. The exchange rate in the free market on the same day was between 17,400-17,550, a decrease of 2.25 per cent.

According to economic experts, the SBV’s decision to supervise and check commercial banks issuing high deposit interest rates means that dong deposit interest rates in the market will be adjusted suitably, ensuring the safety of the banking system.

Related agencies under the State Bank were asked to closely follow performance in the interest rate market to achieve two goals. Fisrtly to ensure that penalties are implemented in the event commercial banks increase the real cost of loans, and secondly, to ensure enough capital for business and production, especially demand for export and agricultural production.

The SBV affirmed that the public would be timely informed of the bank’s measures to manage the country’s banking system, especially information related to interest rates, exchange rates and foreign currency management.

However measures to curb inflation now will definitely have side-effects in the middle term which explains the economy’s shortage of capital due to tightening monetary policies. In the future, many enterprises will face financial difficulties and will have to narrow production scales.

Another middle-term difficulty is that the world’s economy is in free-fall. Crude oil prices continue to increase, breaking record after record, which will create even heavier inflation pressure than in the first six months of the year. Exports numbers will struggle to rise as expected and the stock market will probably not prosper.

The Government’s cutting in public investment and State-owned enterprises’ delaying of projects, though hailed as good and drastic solutions, will lead to difficulties in employment in local and foreign-invested enterprises.

(Source: VNS)