Illustrative image (Source: cafef.vn) Hanoi (VNA) - Despite good liquidity in the banking system, thepeculiarities in Vietnam’s monetary policy management has prevented the declineof interest rates on deposits, a central economic report said.
TheParty Central Committee’s Commission for Economic Affairs in its Vietnam annualreport in February 2017, entitled: ’2017 – Overcoming difficulties andcontinuing to develop’, said that it would be difficult to use inter-bank rateto impact the market interest rate due to the peculiarities in Vietnam’s moneyand banking policy management.
Accordingto the commission, there is a major difference in the monetary policymanagement of Vietnam compared with other countries. The committee explainedthat in Thailand, Indonesia and many other countries, the monetary policymanagement is implemented in accordance with the inflation target. However, themonetary policy management in Vietnam is for multi-purposes, includinginflation control, foreign exchange stability and capital control.
Itdefeats these purposes, when there is pressure on foreign exchange rates, thecommission said.
Ithas cited last year’s experience in the report. When the exchange rateincreased sharply in the wake of US’s Fed interest rate rise, the central bankhad to sell the US dollar and increase the interest rate of treasury bills toreduce the pressure on the foreign exchange rates. It caused a sharp rise ininter-bank rate.
Therefore,according to the commission, maintaining low interest rates in the inter-bankmarket triggers instability, and it will be a barrier to the commercial banksunwilling to lower interest rates (mainly long-term rates).
Besidesthis, excess liquidity in some banks does not easily flow into other banks thatare short on liquidity and do not have good asset quality. According to thecommittee, it is difficult for the latter to borrow from the first, unless theyhave secured assets such as G-bonds.
Therefore,the latter must increase interest rates to higher levels than the average ratesto be able to attract depositors.
Thisyear, the central bank has targeted keeping the interest rate stable, but somecommercial banks inched up deposit interest rates in the first month of theyear.
However,the central bank said the rise was only in some small-sized banks and did notreflect the common trend of the entire banking system. It affirmed thatinterest rates were stable in the first month of 2017 and would remain steadyfor the entire year.
Currently,deposit interest rates average at 0.8 percent to 1 percent per year for belowone-month terms, 4.5 percent to 5.4 percent per year for one-month term tosix-month terms, 5.4 percent to 6.5 percent per year for six-month terms to12-month terms and 6.4 percent to 7.2 percent per year for terms exceeding 12 months.-VNA
TheParty Central Committee’s Commission for Economic Affairs in its Vietnam annualreport in February 2017, entitled: ’2017 – Overcoming difficulties andcontinuing to develop’, said that it would be difficult to use inter-bank rateto impact the market interest rate due to the peculiarities in Vietnam’s moneyand banking policy management.
Accordingto the commission, there is a major difference in the monetary policymanagement of Vietnam compared with other countries. The committee explainedthat in Thailand, Indonesia and many other countries, the monetary policymanagement is implemented in accordance with the inflation target. However, themonetary policy management in Vietnam is for multi-purposes, includinginflation control, foreign exchange stability and capital control.
Itdefeats these purposes, when there is pressure on foreign exchange rates, thecommission said.
Ithas cited last year’s experience in the report. When the exchange rateincreased sharply in the wake of US’s Fed interest rate rise, the central bankhad to sell the US dollar and increase the interest rate of treasury bills toreduce the pressure on the foreign exchange rates. It caused a sharp rise ininter-bank rate.
Therefore,according to the commission, maintaining low interest rates in the inter-bankmarket triggers instability, and it will be a barrier to the commercial banksunwilling to lower interest rates (mainly long-term rates).
Besidesthis, excess liquidity in some banks does not easily flow into other banks thatare short on liquidity and do not have good asset quality. According to thecommittee, it is difficult for the latter to borrow from the first, unless theyhave secured assets such as G-bonds.
Therefore,the latter must increase interest rates to higher levels than the average ratesto be able to attract depositors.
Thisyear, the central bank has targeted keeping the interest rate stable, but somecommercial banks inched up deposit interest rates in the first month of theyear.
However,the central bank said the rise was only in some small-sized banks and did notreflect the common trend of the entire banking system. It affirmed thatinterest rates were stable in the first month of 2017 and would remain steadyfor the entire year.
Currently,deposit interest rates average at 0.8 percent to 1 percent per year for belowone-month terms, 4.5 percent to 5.4 percent per year for one-month term tosix-month terms, 5.4 percent to 6.5 percent per year for six-month terms to12-month terms and 6.4 percent to 7.2 percent per year for terms exceeding 12 months.-VNA
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