Prospects for interest and exchange rates uncertain

14:36 | 24/08/2017 Finance - Banking

(VEN) - Forecasts for the monetary market in the last months of the year indicate that deposit interest rates may fluctuate, while exchange rates will be affected by demand for foreign currencies due to the high trade deficit. However, there are still some factors that could keep interest rates stable.

prospects for interest and exchange rates uncertain

Fluctuations in interest rates

The interbank market in the first half of the year recorded fluctuations in interest rates, which were up in the first quarter and down in the second. Interbank interest rates fell by 1.7-2.5 percentage points by June 2017 compared to the last two months. The State Bank of Vietnam (SBV) also withdrew about VND11.6 trillion net.

Deposit interest rates in the first half of the year also saw slight increases with an average rise of 0.03 percentage points for 12-month terms, while lending interest rates were stable.

According to the National Financial Supervisory Commission, deposit interest rates may fluctuate in some banks that need to balance capital and not use more than 40 percent of their short-term funds for medium- to long-term purposes starting from January 1, 2018. However, prospects for stabilization of interest rates in the last months of the year are supported by elements such as inflation controlled at four percent, issuance of government bonds of more than 30 percent of the plan, and favorable bad debt handling.

Commercial banks must also make further efforts to reduce operating costs in order to help stabilize interest rates.

Exchange rate to be affected by high trade deficit

The National Financial Supervisory Commission’s report shows favorable movements of the exchange rates in the first half of the year. Accordingly, the USD/VND exchange rate in commercial banks in June continued to decrease compared to May. The exchange rate on the free market also fell by 1.65 percent compared to the beginning of the year. In addition, most currencies in an eight-currency basket increased their value against the dollar.

However, export-import growth in the last months of the year will create pressure on the exchange rates. According to the General Department of Vietnam Customs, the trade deficit stood at US$2.78 billion in the first half of the year, US$0.08 billion higher than the target set by the General Statistics Office. The National Financial Supervisory Commission indicates that exchange rate will be largely affected by demand for foreign currencies due to the high trade deficit.

In order to secure capital for businesses and boost economic growth, the SBV recently reduced the refinancing rate and lending interest rates in priority areas by 0.25-0.5 percent per annum.

Duy Minh