VND interest rate will not see big fluctuations: SBV
VNECONOMY updated: 22/11/2007
The Monetary Policy Department under the State Bank of Vietnam has affirmed that there will be no big changes in VND interest rates from now to the end of the year.
The information about the lack of VND and the sharp increases of the overnight interest rate in the inter-bank market has made people think that a new interest rate increase wave is coming.
However, Nguyen Ngoc Bao, Director of the Monetary Policy Department under the State Bank of Vietnam, asserted that the interest rates would be stable towards the year’s end. Mr Bao has cited four reasons that he believes will prevent a new interest rate increase, despite the hot inter-bank market.
First, the supply and demand of capital is basically in balance.
Second, most commercial banks have fulfilled their plans on capital mobilisation for 2007 already and they do not need to raise more money.
Third, the US$ interest rate on the international market is on the decrease.
Fourth, the central bank will not allow big fluctuations in interest rates. The bank will apply necessary monetary operations in order to stabilise the market.
Meanwhile, commercial banks all predict that deposit interest rates will increase towards the end of the year, when the demand for capital disbursement increases.
In the inter-bank market, the overnight interest rate soared to 15% late last week. Meanwhile, no bank wants to lend money at this moment, fearing that they themselves will suffer from the VND capital shortage.
“When the market is short, all banks try to keep VND to ensure their payment capability, and no one intends to lend money now,” the director of a state-owned bank said.
An official from the Bank of Investment and Development said that in the last time, several banks used the capital they borrowed in the inter-bank market (short-term loans) to lend for the long term, and these banks have been suffering since the inter-bank interest rate has soared so dramatically.
However, the official said that he did not think the hot inter-bank market would badly affect the credit market, and said he believed that the troubles of the inter-bank market would be settled this week.
On November 15, the State Bank of Vietnam spent VND500bil to buy short-term valuable papers. The bank spent VND2,000bil on November 16, VND2,000 on November 19 (Monday) and VND3tril on November 20 (Tuesday) to cool the inter-bank market down.
Mr Bao stressed that the injection of money would not influence the implementation of the task on curbing inflation. The money has been pumped in in order to improve the liquidity for banks for the short term of 5-7 days. After that, the money will be taken back.
The shortage of VND in the inter-bank market has been eased after the central bank’s intervention. However, the moves by the central bank have not reassured banks.
Vu Duc Nhuan, Director General of Maritime Bank, predicts that the interest rates may slightly move up because of two reasons: 1. the demand for VND is always high at the year’s end and 2. the measures used by the central bank to control the price increases will show their impacts on interest rates.
Source: Tiền Phong
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