HANOI, May 18 (Xinhua) -- It has been nearly two months since the U.S. Federal Reserve declared its unprecedented unlimited QE (quantitative easing) program amid mounting fears of the COVID-19 fallout. Despite the controversial effectiveness to the U.S. economy, the emergency monetary policy has brought pressure on other economies, including Vietnam, which has seen impacts on its monetary policies and stock market.
On March 23, the Fed announced that it would take the aggressive liquidity-providing efforts to another level, by removing its self-imposed 700 billion U.S. dollars cap on the earlier quantitative easing plan, essentially licensing it to buy as much government debt as it feels is needed to shelter the world's largest economy from the effects of the COVID-19. The Fed also said that, for the first time, it would buy corporate bonds.
While the effectiveness of a QE program to the U.S. economy is still unclear, the Fed's move has posed spillover impacts on external countries. Among them, Vietnam has also been seeing pressures facing its financial authorities.
Under the enormous pressure on central banks worldwide brought by the continuous reduction of basic interest rates by the Fed, Vietnam has cut its benchmark interest rates for two times within two months since March.
The State Bank of Vietnam slashed many rates, including refinancing rate, rediscount rate, demand deposits and deposits rates, by up to 0.5 percentage points from May 13 as part of the attempts to get the economy back on track after the COVID-19 pandemic, the second move of its kind since March 16, daily newspaper Vietnam News reported.
"The cuts are necessary to reduce capital costs for banks, enabling them to provide loans to businesses at less-expensive rates, which will buoy the economy," Nguyen Anh Duc, head of Institutional Sales at Saigon Securities Incorporation, told the Finance Magazine (Tap chi Tai Chinh). Duc also expected that there would be further cut this year as the margin was relatively small.
"Liquidity is what people and businesses are in need right now," Can Van Luc, chief economist of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) was quoted by Banking Times newspaper (Thoi bao Ngan hang) as saying. According to Luc, besides monetary policies, the authorities should urgently implement fiscal solutions, including reducing tax and fees, boosting public investment and encourage consumption, to buoy the economy.
As part of its effort against the economic shock, the Vietnamese government pledged a social security package of up to 62 trillion Vietnamese dong (roughly 2.7 billion U.S. dollars) in early April, to support people directly affected by the COVID-19 epidemic, including workers who lost their jobs, individual business households, among others. The country's Ministry of Finance has also rushed to cut series of fees to support businesses so that they can revive soon.
Besides pressures on the country's financial authorities, local experts also believe that the unlimited QE policy may lead to excess liquidity on the global market and affect Vietnam's stock market. "With more abundant liquidity, investment will direct to safer markets, which are less affected by the COVID-19 epidemic," financial expert Nguyen Tri Hieu told Vietnam's Business Forum Magazine (Dien dan Doanh nghiep).
According to Hieu, due to the psychology impact globally, investors are more cautious and pessimistic, which can cause the global market, including the Vietnamese one, to go down.
He also noted the possible risk of currency war if the unlimited QE policy is to be carried on in the future. "After the epidemic, if other economies normalize their monetary policies but the Fed still implements the QE program and maintains interest rates close to zero percent, it does not rule out the scenario of a currency war," Hieu assessed, noting that by then, other countries will also find ways to devalue the domestic currency to support exports. Enditem
