Interest rate has many chances to decrease from now to the end of year

The reduction of interest rates has received many supporting factors from domestic and international. Photo: H.Dịu

Accordingly, the interest rate is supported by the pressure from the exchange rate which is not too large, the dollar has fallen more than 7% compared to the beginning of the year. Furthermore, the chance to raise interest rates of this year of FED is less than 50%. In addition, inflation is more likely to reach the National Assembly's target (4%).

Besides that, the issuance of government bonds in the remaining five months of 2017 is only about 25% of the plan, the earning yield of terms also decreased by 0.2-0.3 percentage points compared to the end of June that is lower by 1 percentage point compared to the same period of 2016. Hence, it facilitates to the reduction of interest rates in the banking sector.

Finally, according to the indication of the Commission, the movement from the operator also greatly support the interest rate reduction when the State Bank decrease the operation interest rates, the interest rates ceiling on short-term loans is also reduced by State Bank for priority areas.

In particular, the bad debt has a favorable legal mechanism with the Resolution of the National Assembly on the pilot of bad debt as well as the plan for restructuring system of credit institutions associated with dealing bad debts in 2016-2020 has just been approved by the Prime Minister.

Thanks to positive movements in interest rates when the deposit interest rates are stable, lending rates have sung of decrease, credit has grown positively. It is estimated that by the end of July 2017, credit will grow by 9.3% compared to the end of 2016, while it was increased by 8.8% in the same period last year.

However, according to statistics of the National financial supervision commission of Vietnam, proportion of medium and long-term credit tends to decrease, accounting for 53.9% of total credit (at the end of 2016 was 55.1%); Short-term credit accounts for 46.1% (at the end of 2016 accounting for 44.9%).

On the other hand, the credit structure by currency continued to remain stable, credit in VND accounted for 91.7% of total credit; Foreign currency credit accounts for 8.3% of total credit.

Despite the rapid increase in credit, the liquidity of the banking system is plentiful and interbank rates fell to the lowest level since the beginning of the year. As a result, the cumulative in the first seven months of the year, State bank withdrew 48,632 billion vnd via the open market operations (OMO).

According to the National financial supervision commission of Vietnam, the reason why liquidity is plentiful mainly is that the State bank buys a significant amount of foreign currency to increase foreign exchange reserves, thereby increasing the supply of VND to the market. According to the latest data released by the Governor of the State Bank of Vietnam, foreign exchange reserves are currently over $US 42 billion.

Regarding to the exchange rate movements, the Committee said that the exchange rates at commercial banks and free market were stable compared to the previous month and continued to decrease compared to the beginning of the year, while the central rate that was announced by the State bank was adjusted to increase by 1.24% compared to the beginning of the year.

However, for the remaining months of the year, the National financial supervision commission of Vietnam raised concerns about seasonal factors due to high demand for foreign currency which is caused by trade deficit pressure so it could affect the market. However, with the increase of foreign exchange reserves and the gap of interest rates between VND and foreign currencies which are still in favor of holding VND, it is expected that the Dong (VND) will depreciate as the first half of the year.