The latest flow of funds data show that, while the pace of private deleveraging may be slowing down a little, the process continues. Diverting part of their income to reduce leverage slows the speed at which companies and consumers can increase their consumption and investment.
Bank rates in Viet Nam have risen from 14 to 18 per cent in a few days, prompting the central bank to set up an investigation, and order banks to apply “reasonable interest rates”. Since then two key banks, Techcombank and Seabank, have cut their rates to about 14 per cent.
In what appears to be a bidding war for depositors, banks run the risk of destabilising the economy. There are reports of people queueing to withdraw their savings so they can reinvest at higher rates. Some state banks have warned that they will have to take “necessary measures to retain clients” if the rate war were to begin again.
Savers need high rates to compensate for high inflation. An official from the State Bank of VietNam said depositor rates would need to be about 13 per cent. But borrowers have more to lose in the immediate future: consumers and businesses might find themselves unable to refinance, leading to a cash crunch in the broader economy.
Bank rates started rising after
Here’s Nomura on what it calls signs of ‘postmodern monetary policy’ in emerging Europe and the Middle East. It’s a very apt phrase describing the confusion in some central bank quarters. And it looks very familiar:
On balance, we see EEMEA central banks erring on the side of loose policy, even at the expense of higher inflation. Where there is concern about capital inflows, various policy tools are being used to decrease the carry appeal while not easing monetary conditions as much as rate cuts (or postponed hikes)…
Turkey‘s recent 400bp cut in the borrowing rate (and leaving the lending rate unchanged), while at the same time raising reserve requirements is one of the best examples of this creative policy in practice. Israel‘s efforts to ensure that implied forward rates remain at least 100bp below policy rates, or the Central Bank of Romania‘s operations in the basis swap market to minimise speculative capital flows are others. Meanwhile, the South African Reserve Bank appears to be maintaining an easing bias, despite real rates approaching negative territory, as it attempts to balance its concerns about the strength of the currency with stimulus being provided via looser fiscal policy. And in Hungary, the need for risk premia to secure inflation expectations against government policy changes is now leading to rate hikes, where none would have been expected otherwise…
The base rate remains at 0.5 per cent, and the stock of assets purchased stays at £200bn. As expected.
Lower-than-expected growth in Brazil and New Zealand have prompted their central banks to maintain rates; in South Korea, “greatly decreased” inflation motivated the hold decision, in spite of a “continued upward trend” in growth.
Brazil’s monetary policy committee, Copom, kept the Selic rate at 10.75 per cent, hinting that a rate cut might have been on the cards were it not for recent macroprudential policies, whose effects on monetary conditions were yet to be seen.