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VDSC: SBV will not adjust interest rates until inflation exceeds 4%


According to a recent analysis report, VDSC expects that the increase in policy interest rates can be implemented in early 2023 with an increase of 0.5 percentage points or sooner in the fourth quarter of 2022 in a more cautious scenario.

In the July 2022 strategy report, Viet Dragon Securities Corporation (VDSC) is of the opinion that domestic interest rates and exchange rates are still facing upward adjustment pressure from the risk of Fed rate hikes according to the roadmap.

However, with the commitment to "support economic recovery in parallel with controlling inflation, maintaining stable policy interest rates and lending rates in market 1", the SBV will continue to intervene to stabilize the exchange rate. 

Regarding the policy interest rate, with the current inflation and exchange rate pressure, VDSC experts believe that the State Bank will need more time to observe before making a decision to raise the policy interest rate. Inflation will be the decisive factor for the prospect of the State Bank to raise interest rates.

In the report on the macroeconomic situation, VDSC expects that the increase in the policy interest rate can be done in early 2023 with an increase of 50 basis points or it may come earlier in the fourth quarter of 2022 in a more cautious scenario.

The data shows that the dong continued to depreciate in June by 0.4% against the USD after having depreciated by about 1.0% in May. Accumulated since the beginning of the year, the dong has depreciated by about 2.0% and is still one of the least depreciated currencies in the Asia-Pacific region.

In order to curb the devaluation of the dong, the SBV has sold about USD 12-13 billion so far this year, equivalent to more than 11% of the peak foreign exchange reserves at the end of January. At the same time, in June, The State Bank has restarted the channel to attract money through the sale of bills.

From June 21 to July 1, the total amount of money the SBV net withdrew through the treasury bill channel reached 107.6 trillion dong. The latest auction interest rates for 7-day and 14-day tenors were 0.65% and 0.9% respectively, significantly lower than the corresponding tenor rates in the interbank market.

In the short term, the SBV will continue to use two tools, namely foreign exchange reserves and money withdrawal in the open market, to affect the liquidity of VND in the system, thereby curbing pressure on the exchange rate.


Kylie Nguyen

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