Policy rate hikes needed to cushion global impacts: central bank

By Anh Minh   October 28, 2022 | 10:02 pm PT
Policy rate hikes needed to cushion global impacts: central bank
An employee counts Vietnamese banknotes at a bank in Hanoi. Photo by VnExpress/Giang Huy
Raising policy rates is imperative to keep exchange rates under control, a very important factor for foreign investors, State Bank of Vietnam governor Nguyen Thi Hong has said.

To stabilize the forex market amid the global uncertainties, Vietnam needs to accept a short-term depreciation of its currency, she told lawmakers at a meeting on Friday.

"High interest rates could affect businesses and slow down economic growth somewhat, but steady forex and banking systems will enable a boost in recovery later."

Raising banks’ credit quota would put pressure on the exchange rate and the forex market, which is why the central bank has been keeping it under control this year, and banks would have faced a liquidity crisis, she said.

The SBV has increased its policy rate twice this month to 6% after keeping it at 4% for two years.

Banks have been hiking deposit interest rates. The four state-owned lenders Vietcombank, BIDV, Vietinbank, and Agribank now pay 7.4% for 12-month deposits.

The central bank has also widened the dollar-dong daily trading band from 3% to 5%, and SSI Securities analysts expect the dollar to continue to gain as people seek to hoard it amid the global uncertainties.

Hong said the economy has faced greater challenges than expected due to the rising global inflation, declining stock markets and issues with the bond market, which have had a strong impact on the forex and banking systems. "It is therefore a priority to ensure the operation of the banks for now, and the central bank is willing to provide liquidity to lenders to cover their requirements."

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