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Financiers: SBV clearing way for compulsory reserve ratio increase
A lot of moves have been made by the State Bank of Vietnam (SBV) recently, which are believed to be the steps of the central bank to pave the way for a possible increase of the compulsory reserve ratio.
Financial institutions can see a lot of signs showing that the central bank may raise the required compulsory reserve ratio in the time to come.
First of all, curbing inflation remains an imperative task for now. The General Statistics Office (GSO) on May 24, officially announced that the consumer price index (CPI) increase in May reached 2.21 percent, raising the CPI increase in the first five months of the year to 12.07 percent. The figure has far exceeded the inflation rate of 11.75 percent for the whole year of 2011; predicted by experts at the annual ADB’s meeting held in Hanoi several days ago.
All thoughts of investors and experts now concentrate on one thing: whether the central bank will raise the required compulsory reserve ratios on dong deposits as a measure to adjust the monetary policies. Prior to that, the central bank had sent a message of continuing tightening the monetary policies by deciding to raise the interest rates on the open market operation (OMO) from 14 percent to 15 percent recently.
Secondly, securities companies, in their updated reports, pointed out that the liquidity on the interbank market is very good, while the interest rates have been decreasing in recent days. Meanwhile, sources said that the State Bank has given liquidity support to small banks via the refinancing channel.
“The overnight interest rate keeps at low level of 13 percent which shows that the dong liquidity on the interbank market remains profuse,” the May 23 bulletin of the HCM City Securities Company reads.
According to Thoi bao Kinh te Vietnam, the bulletin of Ban Viet Securities Company (VCSC) on the same day confirmed the information. “The overnight interest rate has decreased from 13 percent to 12 percent yesterday, and by 9 percent from the average level of 21 percent in April. The interest rate for one-week loan has also dropped from 16 percent to 14 percent. As such, the one-week loan interest rate has decreased by 6.5 percent from 21.5 percent.,” the report reads.
VCSC believes that the interbank interest rates have decreased significantly recently, because the central bank has pumped a big volume of money into circulation through the foreign currency purchases and refinancing channel.
From April 29 to the first days of May, when the dollar supply was profuse, the State Bank purchased one billion dollars to increase its foreign currency reserves. This also means that 20,600 billion dong has been put into circulation.
However, the purchases have been limited in recent days, because the State Bank’s Exchange has been quoting the dollar price at 20,600 dong per dollar, which is lower than the purchase prices applied by commercial banks. This means that if selling dollars to the central bank, commercial banks would incur losses.
The VCSC’s bulletin also wrote: “We have realized that the State Bank has given liquidity support to small banks via the refinancing channel”. It is still unclear about the refinancing level, but this is clearly seen as an important move.
The refinancing is considered as a step to pave the way for the decision to raise the compulsory reserve ratios. In fact, raising compulsory reserve ratios is the solution to curb inflation which has been considered by the central bank for a long time.
The only reason that makes the bank hesitant to make the decision, is that it fears that the move may badly affect banks’ liquidity. Now when the worry has been raised, the central bank has more reasons to considering raising compulsory reserve ratios.
However, VCSC said, if the central bank does not raise the compulsory reserve ratios, it can use other optional tools, including the bond issue.
Thoi bao Kinh te Saigon has quoted Fiachra Mac Cana from the HCM City Securities Company as saying, “that compulsory reserve ratio can be used as a brake and if Vietnam wants to stop the car quickly, it has to use the brake.”
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