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BVSC: Interest rates are likely to move sideways in the near term


Although deposit rates for 6-month and 12-month terms were recorded to decrease in May 2020, however, with the pressure from inflation, interest rates in the market are expected to move sideways in the coming months.

The statistics on the money markets have just been released by Bao Viet Securities Joint Stock Company (BVSC), showed that in May 2020, 6-month and 12-month deposit rates of all 3 banking types posted downward adjustment.

Specifically, in the past month, the group of state-owned banks, large commercial banks (with a capital of> VND 5,000 billion) and small commercial banks with deposit rates for 6-month terms decreased by 0.15%; 0.10% and 0.08% compared to April.

For 12 month term, these 3 groups also lowered deposit rates by 0.23%; 0.07% and 0.1%.

As recorded by BVSC, deposit rates have been in a steady decline after the State Bank of Vietnam cut policy interest rates and deposit rate ceilings. The maximum interest rate for deposits with terms from 1 to less than 6 months decreased from 4.75% to 4.25%.

In addition, in the open market, the SBV continuously injected money into the market to support liquidity, causing sharp decrease in interbank interest rates. Only in the week from May 25-29, VND 11,000 billion of bills matured and the SBV issued only a small amount of bills (VND 2 billion with an interest rate of 3% p.a.). Therefore, about VND 11,000 billion was net injected directly into the market.

It is expected that in the week from June 1-5, the size of bills matured will be larger than the previous week with VND 25,000 billion. If the SBV continues to not issue new bills, this VND 25,000 billion will continue to be net injected into the market, thereby helping maintain the abundant liquidity of the banking system.

According to BVSC, abundant liquidity also creates favorable conditions for banks to continue to cut interest rates in May 2020.

With market developments, BVSC forecasts: “Interest rates are likely to move sideways in the coming months. It is unlikely that there will be more cuts of the central bank's policy interest rates or interest rate ceilings from now until the end of the year due to the relatively large reduction since the beginning of the year”.

In addition, the upward trend of inflation (due to world oil price rebound and high pork prices) is also an obstacle to the SBV’s orientation of further lowering interest rates.


Kylie Nguyen

© 2019 Vietnam Bank for Agriculture and Rural Development No. 2 Lang Ha street, Ba Dinh district, Hanoi, Vietnam
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