Reserve ratio likely to increase soon, says expert

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SaigonTimes English - 39 month(s) ago 3 readings

HCMC – The central bank will consider increasing compulsory reserve ratios for both Vietnam dong and the U.S. dollar if the consumer price index continues rising in the next two months, said a senior economist.

By Thuy Trieu - The Saigon Times Daily

Economist Vo Tri Thanh talks with investors at Viet Dragon Securities Co. at a seminar in HCMC on Wednesday - Photo: Thuy Trieu HCMC – The central bank will consider increasing compulsory reserve ratios for both Vietnam dong and the U.S. dollar if the consumer price index continues rising in the next two months, said a senior economist.

Vo Tri Thanh, deputy head of Central Institute of Central Management and member of the National Advisory Council for Monetary Policies, said that as the target of curbing inflation and stabilizing the economy is prioritized, raising the reserve ratio would be among the first options

But inflation would likely to increase further in the next few months given the current price increase tempo, Thanh said at a seminar on how the macro economy affects the stock market held by Viet Dragon Securities Co. on Wednesday.

Earlier, Governor Nguyen Van Giau had said on local media that if the credit growth is still high, the central bank will consider rising compulsory reserve after June.

Currently, the compulsory reserve ratios in Vietnam dong is 3% for deposits with terms equal or less than 12 months, and 1% for terms longer than 12 months. The compulsory reserve for the U.S. dollar deposits is 4%% for terms equal or less than 12 months, and 2% for terms longer than 12 months.

“If the Government is determined to implement Resolution 11 on curbing inflation and there is no strong fluctuation on the global economy, it will take at least two quarters to stabilize the macro economy and douse the inflationary pressure,” Thanh said. He explained that it normally requires three to six months for the monetary policy to bring about effectiveness, while the inertia of inflation is can only be prevented after at least six months.

Therefore, the year-on-year inflation is still on the uptrend for the next two months, Thanh added.

So the possibility of rising interest rate for Vietnam dong deposits to make it more attractive against the U.S. dollar is high, and once the compulsory reserve is revised up, the interest rate for dong will also increase, Thanh said. Besides, to raise Vietnam dong’s attractiveness, the forex rate between Vietnam dong and the U.S. dollar should not change much in the coming time, he said.

“Many international institutions forecast the inter-bank forex rate between dong and the U.S. dollar will be around VND21,500 by the end of this year,” he noted. However, if the Government devalues Vietnam dong again, the change will be less than 3%, he predicted.

“Vietnam dong will not be devalued by more than 3% against the dollar between now and the end of the year as the country’s foreign reserve can rise by about US$2-3 billion this year. Governor Nguyen Van Giau has also said Vietnam can have US$2 billion surplus in balance of payments this year,” Thanh said.

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