Stable interest and exchange rates forecast for 2018

14:53 | 24/04/2018 Finance - Banking

(VEN) - Macroeconomic developments and the impact of the international financial market signal a low probability of lower interest rates in 2018. At the same time, stable exchange rates and a high trade surplus are forecast for the year.

stable interest and exchange rates forecast for 2018

Difficulties for lowering interest rates

A recent government resolution requires the State Bank of Vietnam (SBV) to strive for lowered interest rates. However, according to economists, this goal can only be achieved with the support of macroeconomic developments and the international financial market.

Dr. Tran Du Lich, a member of the Prime Minister’s Economic Advisory Group, said the Vietnamese economy would undergo positive changes in 2018. This assessment is based on an estimated GDP growth of more than 7.1 percent in the first quarter of the year. Regarding interest rate policy, in order to force interest rates down and expand lending, rediscount must be increased, lending activities intensified and inflation controlled. “To some extent, interest rates stood at a good level in 2017. I hope interest rates will continue decreasing a little this year. However, it would still be good if interest rates stay at the 2017 level,” Tran Du Lich said.

Vu Viet Ngoan, head of the Prime Minister’s Economic Advisory Group, said keeping interest rates at the 2017 level is the best choice for the economy. Last year, the banking sector underwent restructuring and it still faces many challenges. Therefore, they require favorable interest rate spreads to pay their debts. Liquidity in the banking sector is still low and the interest rate gap between banks is as much as two percent.

stable interest and exchange rates forecast for 2018

Optimism about exchange rates

Economists have provided optimistic forecasts for this year’s exchange rates due to the country’s record high foreign exchange reserves, as well as the SBV’s flexible exchange rate policy.

Tran Du Lich said businesses could feel secure about this year’s exchange rates since no heavy fluctuations are expected. The important thing is for the government to maintain stable policies, he added.

According to Vu Viet Ngoan, 2018 will be a year of opportunities and challenges. The world economy should see more positive signals than in 2017. In Vietnam, investor confidence will continue to be consolidated. Inflation may increase compared to 2017 but will remain under control.

Therefore, 2018 is set to be more positive than 2017, Ngoan predicted. He also advised paying attention to indirect investments in the stock market.

According to the SBV, exchange rates and the foreign exchange market may come under pressure. However, foreign capital flow would continue to underpin the domestic financial market thanks to the stable macroeconomic situation, high growth rate and improved business environment.

SBV Deputy Governor Nguyen Thi Hong affirmed that the central bank would continue to monitor closely domestic and foreign market movements in order to manage exchange rates in a reasonable manner, and implement measures and tools to stabilize the foreign exchange market in order to raise foreign reserves.

Nguyen Tu Anh, deputy director of the Monetary Policy Department under the SBV, said it would be hard to reduce interest rates this year, but exchange rates will remain stable in 2018.

Duy Minh