Inflation not a concern, USD depreciates, capital remains cheap

Capital has become very cheap with the Vietnam dong interest rates in the interbank market having fallen to a four-year record low, according to the Vietnam Interbank Market Research Association.

Inflation

After the social distancing days in April and the 99 days of no COVID-19 cases in the community, demand began increasing, which was expected to spark a new wave of CPI increases.

Inflation not a concern, USD depreciates, capital remains cheap



However, hundreds of new coronavirus cases have been newly discovered, which will affect total demand.

If the demand is weak, the worry about high inflation can be lifted. VIRA’s (Vietnam Interbank Market Research Association) members all believe in the feasibility of keeping inflation at below 4 percent, predicting that the CPI in August may see a 3.3 percent year-on-year increase.

Exchange rate

Before VIRA made predictions for August, the spot-delivery dollar price in the interbank market stayed at VND23,175 per dollar for some consecutive trading sessions.

Before VIRA made predictions for August, the spot-delivery dollar price in the interbank market stayed at VND23,175 per dollar for some consecutive trading sessions.

 


This was the buy price set by the State Bank (SBV) and if the central bank had not made the move, the dollar price would have decreased further.

VIRA’s members noted that SBV has resumed foreign currency purchases, while the foreign currency position of the whole banking system is positive. In other words, the supply is profuse.

The dollar price, therefore, is believed to continue to falling to the ceiling level in August and even may break the floor price of VND23,175 per dollar.

Lending

The Vietnam dong capital is profuse and there are signs of excess. Meanwhile, the credit had grown by 3.45 percent only by the end of July compared with the end of 2019.

As the central bank keeps buying foreign currencies, the pumping of Vietnam dong into circulation is one more factor helping to stabilize interest rates.

The second outbreak of the epidemic has also been cited as a factor that hinders capital flow to the economy and capital stasis may occur.

VIRA’s members believe that the money will continue to be cheap this month with the one-week dong interbank interest rate hovering around 0.25-0.3 percent per annum.

Government bonds

As banks find it more difficult to lend, capital may be redundant, which will prompt them to inject money into government bonds, a safe investment channel.

The last July government bond auctioning session with the low winning rate of 1 percent was followed by a session with a high winning ratio of 80 percent.

The high demand is believed to affect the bond yield. It is expected that the 10-year government bond yield would decrease slightly this month to 2.85 percent.

Regarding the bond supply, the State Treasury plans to mobilize capital in Q3 with VND130 trillion worth of bonds to be issued.

Le Ha 

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Explaining the appreciation of the US dollar recently, Nguyen Duc Do from the Finance Academy said that in the current uncertainty, investors have sold their assets and sought shelter in the dollar. 

 
 

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