Stock market positively responds to interest rate cuts

The State Bank of Vietnam (SBV) continued reducing regulatory interest rates on June 19, the fourth cut in a row since mid-March.

Last week, the benchmark VN-Index rose 2.1%, equivalent to 24 points to 1,129.38 points. The money flows tended to be channeled into bank stocks while some steel and chemical ones also went up thanks to high hopes for the pressure from lending interest rates to be eased, the Lao dong (Labour) daily reported.

Since the beginning of 2023, the SBV has slashed the key interest rates for four times, by 0.5 - 2% per year in total.

The downward trend of the interest rates is expected to continue encouraging the money flows to be shifted from bank deposits to other investment channels with higher profitability like securities.

As a result, the VN-Index has jumped 105 points in total, or over 10%, for the last nearly four months since the first regulatory interest rate cut in mid-March.

According to VietinBank Securities, the reduction of the regulatory interest rates should be maintained for a long time with stronger cuts so that it can have observable effects on the stock market, especially when many factors other than the monetary policy are negatively affecting the market.

The company predicted the stock market will become more positive in the latter half of 2023.

Meanwhile, experts held that there remains room for further cuts.

Standard Chartered forecast the SBV will lower the refunding interest rate by 50 basis points in the third quarter to equal the rate during the pandemic-hit years, and maintain the level until the end of 2025.

Likewise, HSBC experts also projected another interest cut, by 50 basis points, for Q3 which will decrease the regulatory interest rates to 4% and reverse tightening efforts in 2022. The move will also be equivalent to the reduction during the COVID-19 pandemic.

Analysts from the Maybank Investment Bank also said Vietnam still has room to lower the rates between now and the year’s end.