VietNamNet Bridge - Increasing demand for loans in Vietnamese dong has caused the lending interest rate to rise, while the stock market has been hurt by US dollar appreciation. 

 

The dong interbank interest rate on loans has been high since early March. The overnight interest rate late last week rose to 4 percent per annum, while the one-month interest rate went up to 4.53 percent. 

A banker said the demand for dong has been increasing because of the significant increase in outstanding loans in the first two months of the year. 

Moreover, higher interest rates are what the State Bank wants now, because this would help prevent foreign currency speculation.

He said that with such high dong interest rates, no credit institution would be foolish enough to keep dollars.

The overnight interest rate has fallen dramatically to below one percent. This means that the current interest rate is four times higher than the deepest low.

The high interbank interest rates have affected the bond market. Only VND2.4 trillion worth of government bonds were sold out of the VND9 trillion offered in the last two bidding sessions. 

Long term bonds were sold even more slowly with only VND120 billion worth of 5-year bonds sold. 

The upward tendency in interest rates is never good news for the stock market, because securities investors would have higher investment costs. 
Meanwhile, the continued dollar price increase in recent days has worried investors.

The current situation does not support the stock market, which has become less active, while liquidity has been decreasing significantly in recent days, when the black market dollar price surged to VND21,800 per dollar.

However, when the world’s gold price moved up from $1,150 per ounce to $1,187, the black market dollar price fell to VND21,600-21,650 per dollar, the exchange rate quoted by commercial banks unexpectedly rose.

On March 24, some banks quoted the dollar price at VND21,570 per dollar, while they bought and sold at VND21,480 and VND21,500 per dollar only several days ago.

Vietnamese will remain calm if the black market dollar price escalates, because they think the market usually reacts extremely to bad news. However, the changes in the banks’ dollar quoted prices are a concern.

Analysts believe that this contributed to more foreign investors selling on both the Hanoi and HCM City bourses. Not only ETFs (exchange traded funds), but closed end funds have also been trying to sell stocks.

In general, foreign investors usually buy stocks in March and April, and only sell in from May to August.

TBKTSG