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Foreign institutions applaud interest rate, exchange rate move
The latest move by the State Bank of Vietnam to raise the basic interest rate and VND/US$ exchange rate has been applauded by a lot of foreign bankers in the world, who say that the move was made sooner than they expected.
Applauding interest rate increase
In the report named “Vietnam: Moving in the right direction”, German Deutsche Bank wrote that the decision to raise the basic interest rate by the State Bank of Vietnam reflects the government of Vietnam’s determination to prioritise the task of fighting inflation.
However, the bank’s staffs think that the VND interest rate should be raised further in the time to come in order to ensure a positive real interest rate for depositors.
In order to ensure the efficiency of the tightened monetary policies, Deutsche Bank’s analysts suggested that Vietnam be more determined to cut spending from the state budget and more strictly supervise state-owned enterprises’ operations.
They said that Vietnam should apply policies under which state-owned enterprises have permission from the Prime Minister to make investments in the finance and real estate sectors.
In its June 11 bulletin, Credit Suisse wrote that the raising of the basic interest rate and adjustment of the VND/US$ exchange rate were contradictory actions that reflected a striving for two goals at the same time: curbing inflation and balancing international payment.
The bank’s experts say that the move by SBV occurred sooner than they thought, but the move did not surprise them, as the government of Vietnam prioritises the task of fighting inflation.
On June 11, the report by Standard Chartered “Taking appropriate actions” said that the interest rate increase will help restrain commodity price increases, while, to some extent, also help reduce the demand for imports.
The June 10 report by JP Morgan Chase commented that Vietnam’s measures to fight inflation are going in the right direction.
JP Morgan Chase highly applauds the actions by policy makers to restore people’s confidence (making public foreign currency reserves, confirming the surplus of international payment, putting the fight against inflation as the top priority task, cutting public expenditures).
Regarding the decision to raise the interest rate, the report said that the move will encourage people to keep saving money in VND, while helping curb credit growth and the demand for imports. The report also suggested Vietnam further raise interest rates in the time to come.
Arguing about exchange rates
The 2% VND/US$ exchange rate increase is thought by Standard Chartered to have brought the official exchange rate closer to the black market’s rate. The bank has advised the country to further adjust the exchange rate in the time to come to reduce the trade deficit.
Credit Suisse’s report said that the decrease of the value of the VND may increase inflation in the short term as the prices of import products will increase. It is possible that the state may allow the further depreciation of the VND, but this would be controlled depreciation.
Meanwhile, Deutsche Bank thinks that Vietnam should not depreciate the VND in the time to come in order to prevent Vietnamese people from keeping dollars instead of VND. The most important thing now for Vietnam is to restore the confidence of people in the VND and banking system.
Meanwhile, JP Morgan Chase thinks that the adjustment of the VND/US$ and the interest rate increase will bring the opposite effects. The bank’s experts think that the move may prompt people to keep assets in dollars.
VNN
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