Vietnam's deposit interest rates may see a slight increase in the second half of the year as the economy shows clear signs of improvement, according to banking experts.
Since the beginning of the second quarter, VND interest rates have been on the rise. By mid-year, deposit rates at banks had increased by about 0.5 to 1 percentage point across various terms.
Interbank market transaction rates have also climbed, with intervention rates such as the open market operation (OMO) rates and treasury bill issuance rates being adjusted upwards.
However, the key official rates, namely the refinancing rate and the cap on short-term deposit rates, have remained unchanged.
Executive Director Dinh Duc Quang of Treasury at UOB Vietnam Bank noted that these developments indicate no change in monetary policy by the authorities.
Commercial interest rates, including those for deposits from residents and businesses, as well as interbank rates, are being adjusted to better reflect supply and demand dynamics in the market, the relative position of USD interest rates globally, and investment returns compared to other channels such as securities, real estate, and precious metals.
"Commercial interest rates were very low in the second half of last year due to slow economic growth, limited credit demand, and underperforming investment channels," Quang said.
"However, from the second half of 2024, the economy has improved markedly, and therefore, interest rates will seek a new equilibrium", he added.
Currently, deposit rates are still lower than pre-pandemic levels, particularly for terms under six months, which remain below the regulatory cap.
Quang forecasts that VND deposit rates could increase by an additional 0.25 to 0.75 percentage points in the second half of the year, creating a balanced yield curve for terms from one to twelve months at around 3 - 6 per cent by the end of 2024.
"This is quite reasonable given stable macroeconomic conditions, inflation controlled around 4 per cent, and the USD/VND exchange rate fluctuating by about 4 - 5 per cent this year," he added.
Suan Teck Kin, executive director in Global Economics and Markets Research, UOB Group, believes the recent depreciation of the VND against the USD and rising domestic inflation may prompt the State Bank of Vietnam (SBV) to be cautious in making any changes to policy rates.
He expects the SBV to maintain the refinancing rate at its current 4.5 per cent level for now, considering the potential slowdown in economic growth in the second half of the year.
Ngo Dang Khoa, country head of Markets and Securities Services at HSBC Vietnam, also anticipates that the SBV will keep policy rates stable at 4.5 per cent despite the pressures of VND depreciation and inflation.
He projects that the USD/VND exchange rate will continue to face pressure until the end of the year due to ongoing issues such as the trade balance and foreign investors' net selling in the stock market.
External factors like the U.S. elections and geopolitical tensions will likely continue to cause fluctuations in international financial markets, indirectly affecting exchange rates. Khoa emphasized that flexible and proactive exchange rate management policies are crucial in facing these challenges.
For businesses, it is important to develop risk management policies to hedge against exchange rate fluctuations using legal instruments such as forwards and swaps to manage cash flow and costs proactively.
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