The two international economic issues which had lured attention of the business community as well as the public since the beginning of August were oil prices hitting the record level of $67 per barrel and FED rising interest rate on US dollar to 3.5%, the highest level in the last 4 years
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The two international economic issues which had lured attention of the business community as well as the public since the beginning of August were oil prices hitting the record level of $67 per barrel and FED rising interest rate on US dollar to 3.5%, the highest level in the last 4 years.
In fact, the interest rate rise was foreseen. However, it came at a very sensitive time when the domestic monetary market was hot up. Commercial banks raised interest rate on dong and the consumer price index (CPI) of the first 7 months was 5.6% against the full-year target of 6.5%. FED’s interest rate rise of course led banks to adjust their interest rates on dollar and then had impacts on the economy.
To the contrary, hikes in oil prices in the world market were unexpected. Higher oil prices benefited oil exporters but caused higher retail prices of petroleum-based products.
Dong capital scarcity
Commercial banks adjusted interest rates on dollar basing on Sibor and Libor interest rates because if demand for dollar capital was low, they would invest the money in more profitable international markets. After FED raised the rate to 3.5% on August 10, joint-stock commercial banks took the lead in high deposit interest rates. However, after minus compulsory reserves rate on foreign currencies, interest rates set by commercial banks were approximate Libor and Sibor interest rates. That was the sign that commercial banks had not invested their money in other markets.
As interest rates on dollar rose and the CPI kept rising, bank customers preferred dollar deposits, causing a scarcity of dong capital.
Moreover, lending rates on dollar also picked up. Corporate borrowers thus became cold to loans in the foreign currency and rushed to dong loans, underpinning the dong shortage.
Heavy budget losses
Oil prices in the world market were hovering $66 per barrel. In the first 10 days of the month, oil prices raised a rate of 4.2% per year. Advance estimates said oil prices would further go up.
Since the beginning of this year, oil and petrol retail prices in the domestic market have been adjusted 4 times. It was apparent that if oil prices kept climbing up, importers would suffer from heavier losses and the State would have to spend thousands of billions of dongs compensating the burdens.
Additionally, retail prices of oil and petrol in
According to the Ministry of Finance, the amount of money to compensate for losses against oil imports was estimated to be VND15,700 billion. Moreover, duty rate on oil import was lowered to 0%, bringing no incomes to state funds.
(Source: Vneconomy)
