Exchange rate management: “Do not use high doses of antibiotics to treat intestinal diseases”

06/11/2024 06:53

There will not be too much pressure on exchange rates from now until the end of the year. (Photo MH - Ngoc Thang).

(PLVN) - If exchange rates are like intestinal diseases and interest rates are like high-dose antibiotics, according to Dr. Truong Van Phuoc - former Acting Chairman of the National Financial Supervision Committee, then "high-dose antibiotics should not be used to treat intestinal diseases"...

In a June 2024 Macroeconomic Report recently published by Rong Viet Securities Company (VSC), it mentioned the trend of increasing interest rates in both markets: the interbank market and the market of financial institutions lending to businesses and individuals.

Accordingly, in May 2024, the average overnight lending rate was about 4.3%/year, an increase of 28 basis points compared to the previous month. The lending rates for 1-week and 2-week terms also increased by 24 - 39 basis points to 4.52%/year and 4.63%/year, respectively. Meanwhile, the interest rates for longer terms from 1 - 3 months recorded higher increases, by 54 basis points and 70 basis points to 4.68%/year and 5.08%/year, respectively.

Since April 24, the State Bank has also adjusted lending rates on the mortgage channel and the treasury bill channel by 50 basis points, to 4.5%/year and 4.25%/year, respectively, equal to the refinancing lending rate.

In the banking market for corporate and residential loans, the mobilization interest rates of private commercial banks in group 1 increased slightly with an average increase of 15 - 33 basis points in all terms, with short terms of 1 - 3 months recording a larger change than long terms.

Commenting on the trend of VND/USD exchange rate fluctuations, experts from Rong Viet Securities Company said that in the coming time, whether the exchange rate will continue to be tense or not will depend significantly on the Fed's interest rate cut roadmap and the USD trend.

“External developments are currently quite favorable for exchange rate management, so we believe that the base scenario is that the VND/USD exchange rate can be maintained at 25,500 VND. Considering domestic factors, the peak time for foreign currency demand usually falls at the end of the third quarter and the beginning of the fourth quarter. At that time, the State Bank may need to continue selling foreign currency to stabilize the exchange rate…” - experts from Rong Viet Securities Company commented.

At the Vietnam Financial Advisory Summit 2024 held last weekend, Dr. Can Van Luc, Chief Economist of BIDV, Member of the National Financial and Monetary Policy Advisory Council, assessed that, up to now, interest rates, exchange rates and bad debt have increased under control. According to the expert, credit is currently increasing by 2.41%, although lower than the same period last year, this credit growth is in line with the demand of the economy.

More specifically, Dr. Truong Van Phuoc, former Acting Chairman of the National Financial Supervisory Commission, said that the VND/USD exchange rate will not exceed 26,000 VND because the Fed is likely to cut interest rates in July 2024. “Whether the interest rate cut takes place in July or September, the USD will still be on a downward trend. When the Fed cuts interest rates, the USD-Index will drop to 100 points. Therefore, Vietnam does not need to raise interest rates to stabilize the exchange rate…” - The expert advised.

Giving an analogy between exchange rate and interest rate, Dr. Truong Van Phuoc said that if we consider exchange rate as intestine, then interest rate is a high dose of antibiotics. “If we push interest rate up to treat inflation, exchange rate is too simple, but the price to pay is that the economy needs cheap capital cost. What I want to say is do not use high dose of antibiotics to treat intestinal diseases…” - he compared.

Regarding the nearly 5% devaluation of the exchange rate since the beginning of the year, experts believe that, in terms of balance (balance of payments, inflation, etc.), VND should not have depreciated by 5% in one quarter. At the same time, they suggest that the 0% USD interest rate policy needs to be re-evaluated, as this is one of the reasons why Vietnam is always under pressure with the exchange rate.

Source: https://baophapluat.vn/dieu-hanh-ty-gia-khong-nen-dung-khang-sinh-lieu-cao-de-chua-benh-duong-ruot-post515299.html