The decision of the State Bank of Vietnam (SBV), the country’s central bank, in lowering the policy interest rate by 0.25 percentage points is deemed to have orientational and psychological effects, instead of major impacts on the financial market, according to Bao Viet Securities Company (BVSC).
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Following the decision, the refinancing interest rate is down from 6.25% per annum to 6%, rediscount rate from 4.25% to 4%, overnight interest rate from 7.25% to 7% and interest rate via OMO from 4.75% to 4.5%.
According to BVSC, the SBV’s move is rather unsurprising after the bank lowered the treasury bill yield by 0.25 percentage points in July.
Meanwhile, central banks all around the world have lowered interest rates to safeguard against global economic slowdown risk and “Vietnam’s monetary authorities do not want to stand against the common trend.”
Nonetheless, from practical point of view, BVSC expected the impact of lowering interest rate by the SBV this time will not be as significant as the in the US and the EU. It is because normally, the change in the monetary policy in Vietnam takes place through the direct adjustments to money supply by setting targeted credit growth rate and M2; unlike in the US and the EU where the change in monetary policy occurs through intermediate mean by adjusting the policy rates.
Moreover, interest rates such as discount rate, capital refunding rate are the tools only utilized when some banks experience liquidity issues and have to borrow money/capital from the SBV through the interbank channel. Even the action of lowering Treasury yield in July has limited impact on lending rate on market.
To determine whether Vietnam has truly adopted easing monetary policy, BVSC stated it is necessary to wait for the confirmation from the incoming data of credit growth and M2.
Banking expert Nguyen Tri Hieu told VnEconomy the Vietnamese economy is under multiple impacts from the US – China trade war, the country’s two major trading partners, so the interest rate could not remain unchanged.
The recently adjusted-benchmark rate is quite low compared to the current loan rates, which poses no major impact to the deposit and lending rates, Hieu added, saying the SBV stays cautious in managing interest rates.
Le Xuan Nghia, former vice president of National Financial Supervisory Committee, said the SBV may consider another rate cut from now on until the end of the year to have a substantial impact and support economic growth.
