{"id":76667,"date":"2024-04-20T15:19:00","date_gmt":"2024-04-20T08:19:00","guid":{"rendered":"https:\/\/neu.edu.vn\/savings-interest-rates-forecast-to-rise-exchange-rates-to-fluctuate-but-remain-under-control-assoc-prof-dr-le-thanh-tam\/"},"modified":"2024-04-20T15:19:00","modified_gmt":"2024-04-20T08:19:00","slug":"savings-interest-rates-forecast-to-rise-exchange-rates-to-fluctuate-but-remain-under-control-assoc-prof-dr-le-thanh-tam","status":"publish","type":"post","link":"https:\/\/neu.edu.vn\/en\/savings-interest-rates-forecast-to-rise-exchange-rates-to-fluctuate-but-remain-under-control-assoc-prof-dr-le-thanh-tam\/","title":{"rendered":"Savings Interest Rates Forecast to Rise, Exchange Rates to Fluctuate but Remain Under Control. Assoc. Prof. Dr. Le Thanh Tam"},"content":{"rendered":"
NDO – In the recently released annual publication Vietnam Economic Review 2023 by National Economics University (NEU), the authors argue that, as aggregate demand declines, the appropriate response is to further strengthen the role of fiscal policy and gradually reduce the role of monetary policy. A Nhan Dan newspaper reporter interviewed Assoc. Prof. Dr. Le Thanh Tam, Head of Division of Commercial Banking, Institute of Banking and Finance, NEU, on this issue.<\/div>\n
\n
\n\n\n\n\n
\"Assoc.<\/td>\n<\/tr>\n
Assoc. Prof. Dr. Le Thanh Tam.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
\n

Interest Rates Have Fallen to Their Lowest Level in 20 Years<\/p>\n

Reporter: <\/em>How do you assess interest rate <\/a>developments in 2023 in terms of supporting individuals and businesses to promote economic recovery?<\/em><\/p>\n

Le Thanh Tam: Vietnam faced numerous difficulties and challenges concerning interest rates and exchange rates<\/a> in 2023, but overall achieved encouraging results.<\/p>\n

The State Bank of Vietnam cut interest rates four consecutive times, with reductions of 0.5\u20132.0 percentage points per year. This policy ran counter to the policy of raising interest rates and keeping them high in most countries around the world, but was well suited to Vietnam\u2019s conditions.<\/p>\n

In addition, the State Bank of Vietnam issued four directives and held meetings with commercial banks, requiring them to cut costs to lower lending rates to support businesses and individuals; and to reduce lending rates on outstanding loans and new loans, targeting a minimum reduction of 1.5\u20132 percentage points per year.<\/p>\n

As a result, interest rates in 2023 fell to their lowest level in 20 years, particularly rates on deposits and new loans. However, the reduction in lending rates remained relatively small compared with the reduction in deposit rates in 2023.<\/p>\n

\n

During the current period of declining aggregate demand, the role of fiscal policy, specifically countercyclical fiscal policy, needs to be strengthened further, while the role of monetary policy<\/a> should gradually be reduced. Further monetary easing at this stage would elicit little market response and could pose risks to macroeconomic and financial stability. Therefore, great caution is needed when considering further cuts to policy rates.<\/p>\n

However, banks may need to reduce lending rates further, by 0.5\u20131 percentage point, to enable credit growth of 15%, provided that credit institutions cut costs and accept lower income.<\/p>\n<\/p><\/div>\n

Reporter: In your view, how did exchange rate fluctuations in 2023 affect policy management and the economy?<\/em><\/p>\n

Le Thanh Tam: In the first six months of 2023, the USD index moved sideways rather than rising sharply as it did in 2022. In the second half of 2023, however, the VND came under depreciation pressure, and it depreciated by 4.25% over the full year.<\/p>\n

The VND depreciated in line with the general trend, but its depreciation was much smaller than that of currencies in many countries in the region: 5.56% for the New Taiwan dollar of Taiwan (China), 8.55% for the Malaysian ringgit, 6.77% for the South Korean won, 6.09% for the Chinese yuan, and 14.43% for the Japanese yen.<\/p>\n

The State Bank of Vietnam pursued flexible exchange rate management<\/a>, allowing both increases and decreases in line with market movements to stabilize the foreign exchange market. It adjusted the central exchange rate, increased net liquidity withdrawals through bills, and pushed winning bid rates higher to improve the interest rate differential between the VND and USD, helping ease exchange rate pressure during periods of strong upward pressure.<\/p>\n

At the same time, the State Bank of Vietnam also purchased an estimated USD 6 billion in foreign currency from credit institutions to replenish state foreign exchange reserves. This brought state foreign exchange reserves to nearly USD 100 billion, helping Vietnam secure an upgrade to BB+.<\/p>\n

Dollarization in the economy continued its downward trend. The ratio of foreign currency deposits to total means of payment fell below 7.5% in 2020 and is highly likely to meet the target of below 5% by 2030, creating conditions for moving toward ending foreign currency lending and addressing dollarization in the economy.<\/p>\n

Exchange Rates Forecast to Rise but Remain Under Control<\/p>\n

Reporter: What are your forecasts for interest rate and exchange rate trends in the coming period?<\/em><\/p>\n

Le Thanh Tam: In the remaining quarters of the year, lending rates are forecast to continue declining slowly, while deposit rates for certain maturities are expected to rise.<\/p>\n

\u00a0<\/div>\n

One reason lending rates are likely to decline slowly is that most commercial banks disclosed their average lending rates before April 1, 2024, as required by the State Bank of Vietnam in Official Letter No. 1628\/NHNN-CSTT. Borrowers therefore have a basis for comparison and negotiation with banks, although interest rates vary among borrowers because of differing risk premiums;<\/p>\n

Another reason is that many customers face difficulties in their production and business operations, making it difficult for them to borrow at high interest rates and still earn a profit\u2026<\/p>\n

However, deposit rates for certain maturities are likely to increase to some extent, particularly for savings deposit products, because current deposit rates are already relatively low. Meanwhile, gold prices<\/a>, real estate prices, and foreign currency rates are rising sharply, and some customers have withdrawn their savings to invest in these assets;<\/p>\n

There is a risk of rising inflation as civil servant salaries, pensions, and regional minimum wages are set to increase starting July 1, 2024. Therefore, if deposit rates are too low, real interest rates could turn negative, adversely affecting individuals and the economy;<\/p>\n

Commercial banks still rely heavily on deposits, while other funding channels, such as bond issuance, interbank borrowing, and international borrowing, remain relatively limited. However, I believe that rates on payment account deposits, corporate deposits, and long-term savings may remain unchanged.<\/p>\n

Exchange rates are forecast to continue trending upward but remain within the State Bank of Vietnam\u2019s ability to control. This forecast is based on global geopolitical risks, with conflicts in hotspots around the world showing no signs of easing and even intensifying sharply in some places, such as the Middle East and the Red Sea, driving strong upward trends in gold and oil prices. Global supply chains are disrupted, and prices of goods and services are tending to rise sharply, posing inflation risks.<\/p>\n

Interest rates in the United States and Europe may not decline quickly, and the Fed\u2019s interest rates have not yet fallen in the second quarter of 2024, making it difficult for Vietnam to avoid continued upward pressure on the USD\/VND exchange rate.<\/p>\n

Furthermore, public debt in developed economies such as the United States and the euro area is at record highs, creating financial pressure and risks to economic stability. Aggregate demand globally and in Vietnam has shown no signs of a strong recovery. Although economic growth worldwide and in Vietnam in 2024 is expected to be higher than in 2023, it is still forecast to remain below pre-COVID-19 pandemic levels.<\/p>\n

Reporter: In this context, what measures are needed in interest rate and exchange rate management to balance the objectives of supporting exports, containing inflation, and promoting economic growth?<\/em><\/p>\n

Le Thanh Tam: I believe that, in the current context, the State Bank of Vietnam needs to continue monitoring commercial banks\u2019 disclosure of average lending rates to enhance transparency in the credit market and protect customers. At the same time, it should create a favorable environment for credit institutions to diversify their funding sources, particularly medium- and long-term funding.<\/p>\n

Regarding exchange rate management, the State Bank of Vietnam needs to continue maintaining a flexible and stable exchange rate management mechanism aligned with market developments. It should regularly update its approach and intervene in both directions to effectively absorb external shocks;<\/p>\n

Other important measures include strengthening foreign exchange reserves, continuing to diversify the currency basket, and gradually reducing dependence on the USD alone; and strengthening macro- and micro-level supervision of credit institutions to ensure the safe and sustainable development of the entire system.<\/p>\n

Commercial banks need to manage costs effectively and nonperforming loans well to reduce costs and lower interest rates as much as possible for borrowers; increase the current account savings account (CASA) deposit ratio to both expand their customer base and reduce average funding costs, providing a basis for lowering lending rates; and expand the use of technology in online lending, customer credit assessment and rating, and customer monitoring, thereby reducing average lending costs.<\/p>\n

Reporter: Thank you!<\/em><\/p>\n

TO HA<\/em><\/p>\n<\/p><\/div>\n

Link: https:\/\/nhandan.vn\/du-bao-lai-suat-tiet-kiem-tang-ty-gia-bien-dong-nhung-trong-tam-kiem-soat-post805616.html<\/a><\/p>\n<\/p><\/div>\n<\/p><\/div>\n

This is an automated translation. If you notice any errors, please contact the Department of Communications, National Economics University at phongtruyenthong@neu.edu.vn<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

NDO – In the recently released annual publication Vietnam Economic Review 2023 by National Economics University (NEU), the authors argue that, as aggregate demand declines, the appropriate response is to further strengthen the role of fiscal policy and gradually reduce the role of monetary policy. A Nhan Dan newspaper reporter interviewed Assoc. Prof. Dr. Le Thanh Tam, Head of Division of Commercial Banking, Institute of Banking and Finance, NEU, on this issue. Assoc. Prof. Dr. Le Thanh Tam. Interest Rates Have Fallen to Their Lowest Level in 20 Years Reporter: How do you assess interest rate developments in 2023 in terms of supporting individuals and businesses to promote economic recovery? Le Thanh Tam: Vietnam faced numerous difficulties and challenges concerning interest rates and exchange rates in 2023, but overall achieved encouraging results. The State Bank of Vietnam cut interest rates four consecutive times, with reductions of 0.5\u20132.0 percentage points per year. This policy ran counter to the policy of raising interest rates and keeping them high in most countries around the world, but was well suited to Vietnam\u2019s conditions. In addition, the State Bank of Vietnam issued four directives and held meetings with commercial banks, requiring them to cut costs to lower lending rates to support businesses and individuals; and to reduce lending rates on outstanding loans and new loans, targeting a minimum reduction of 1.5\u20132 percentage points per year. As a result, interest rates in 2023 fell to their lowest level in 20 years, particularly rates on deposits and new loans. However, the reduction in lending rates remained relatively small compared with the reduction in deposit rates in 2023. During the current period of declining aggregate demand, the role of fiscal policy, specifically countercyclical fiscal policy, needs to be strengthened further, while the role of monetary policy should gradually be reduced. Further monetary easing at this stage would elicit little market response and could pose risks to macroeconomic and financial stability. Therefore, great caution is needed when considering further cuts to policy rates. However, banks may need to reduce lending rates further, by 0.5\u20131 percentage point, to enable credit growth of 15%, provided that credit institutions cut costs and accept lower income. Reporter: In your view, how did exchange rate fluctuations in 2023 affect policy management and the economy? Le Thanh Tam: In the first six months of 2023, the USD index moved sideways rather than rising sharply as it did in 2022. In the second half of 2023, however, the VND came under depreciation pressure, and it depreciated by 4.25% over the full year. The VND depreciated in line with the general trend, but its depreciation was much smaller than that of currencies in many countries in the region: 5.56% for the New Taiwan dollar of Taiwan (China), 8.55% for the Malaysian ringgit, 6.77% for the South Korean won, 6.09% for the Chinese yuan, and 14.43% for the Japanese yen. The State Bank of Vietnam pursued flexible exchange rate management, allowing both increases and decreases in line with market movements to stabilize the foreign exchange market. It adjusted the central exchange rate, increased net liquidity withdrawals through bills, and pushed winning bid rates higher to improve the interest rate differential between the VND and USD, helping ease exchange rate pressure during periods of strong upward pressure. At the same time, the State Bank of Vietnam also purchased an estimated USD 6 billion in foreign currency from credit institutions to replenish state foreign exchange reserves. This brought state foreign exchange reserves to nearly USD 100 billion, helping Vietnam secure an upgrade to BB+. Dollarization in the economy continued its downward trend. The ratio of foreign currency deposits to total means of payment fell below 7.5% in 2020 and is highly likely to meet the target of below 5% by 2030, creating conditions for moving toward ending foreign currency lending and addressing dollarization in the economy. Exchange Rates Forecast to Rise but Remain Under Control Reporter: What are your forecasts for interest rate and exchange rate trends in the coming period? Le Thanh Tam: In the remaining quarters of the year, lending rates are forecast to continue declining slowly, while deposit rates for certain maturities are expected to rise. \u00a0 One reason lending rates are likely to decline slowly is that most commercial banks disclosed their average lending rates before April 1, 2024, as required by the State Bank of Vietnam in Official Letter No. 1628\/NHNN-CSTT. Borrowers therefore have a basis for comparison and negotiation with banks, although interest rates vary among borrowers because of differing risk premiums; Another reason is that many customers face difficulties in their production and business operations, making it difficult for them to borrow at high interest rates and still earn a profit\u2026 However, deposit rates for certain maturities are likely to increase to some extent, particularly for savings deposit products, because current deposit rates are already relatively low. Meanwhile, gold prices, real estate prices, and foreign currency rates are rising sharply, and some customers have withdrawn their savings to invest in these assets; There is a risk of rising inflation as civil servant salaries, pensions, and regional minimum wages are set to increase starting July 1, 2024. Therefore, if deposit rates are too low, real interest rates could turn negative, adversely affecting individuals and the economy; Commercial banks still rely heavily on deposits, while other funding channels, such as bond issuance, interbank borrowing, and international borrowing, remain relatively limited. However, I believe that rates on payment account deposits, corporate deposits, and long-term savings may remain unchanged. Exchange rates are forecast to continue trending upward but remain within the State Bank of Vietnam\u2019s ability to control. This forecast is based on global geopolitical risks, with conflicts in hotspots around the world showing no signs of easing and even intensifying sharply in some places, such as the Middle East and the Red Sea, driving strong upward trends in gold and oil prices. Global supply chains are disrupted, and prices of goods and services are tending […]<\/p>\n","protected":false},"author":9,"featured_media":37056,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[724],"tags":[],"class_list":["post-76667","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economic-information"],"acf":[],"_links":{"self":[{"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/posts\/76667","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/comments?post=76667"}],"version-history":[{"count":0,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/posts\/76667\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/media\/37056"}],"wp:attachment":[{"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/media?parent=76667"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/categories?post=76667"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/tags?post=76667"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}