Which investment channel is effective?

Interest rates fall, deposit mobilization decreases.

Late in the afternoon of May 23, 2022, the State Bank of Vietnam announced a reduction in policy interest rates. Accordingly, the maximum interest rate applied to demand deposits and time deposits with a term of less than one month remained unchanged at 0.5%/year; the maximum interest rate applied to time deposits with a term from one month to less than six months decreased from 5.5%/year to 5.0%/year, except for the maximum interest rate for VND deposits at People's Credit Funds and Microfinance Institutions, which decreased from 6.0%/year to 5.5%/year; interest rates for time deposits with a term of six months or more are determined by credit institutions based on market supply and demand for capital.

This is the third time this year that the State Bank of Vietnam has lowered its policy interest rate. Previously, the central bank had reduced interest rates twice in a row in March 2023, leading to a decrease in deposit interest rates at commercial banks.

The reductions in deposit interest rates were implemented to create room for lowering lending interest rates to support businesses in overcoming difficulties.

With falling interest rates, depositing money in savings accounts will certainly become less attractive. However, choosing an effective investment channel remains a difficult task for those holding money. (Illustrative image)

According to statistics from the State Bank of Vietnam, by the end of April 2023, the average interest rate on VND deposits at domestic commercial banks was 0.2 - 0.3%/year for demand deposits and deposits with maturities of less than 1 month; 5.3 - 5.4%/year for deposits with maturities from 1 month to less than 6 months; 7.1 - 8.8%/year for deposits with maturities from 6 months to 12 months; 6.8 - 8.0%/year for deposits with maturities from over 12 months to 24 months; and 7.1 - 8.3%/year for maturities over 24 months.

Thanks to lower deposit interest rates, the average lending interest rate of domestic commercial banks for new and existing loans with outstanding balances is at 9.6 - 11.2% per year. The average short-term lending interest rate in VND for priority sectors is approximately 4.4% per year, lower than the maximum short-term lending interest rate stipulated by the State Bank of Vietnam.

Lower deposit interest rates create a favorable environment for businesses, but conversely, bank deposits become less attractive.

According to data from the General Statistics Office, in the first quarter of 2023, capital mobilization by credit institutions increased by 0.77%, much lower than the 2.15% figure in the first quarter of 2022.

Which investment channel will be effective?

Currently, there are three main investment channels that "compete" with bank deposits: gold, foreign currency, and real estate. However, foreign currency and real estate are clearly at a disadvantage.

Regarding foreign exchange, at the 2023 Banking Overview Forum, held in Hanoi on May 10, 2023, Dr. Can Van Luc – Chief Economist of BIDV and member of the National Financial and Monetary Policy Advisory Council – predicted that the US Federal Reserve (FED) will no longer raise interest rates this year after 10 rapid rate hikes to record levels since 2007; and will reverse interest rate policies starting in early 2024.

Therefore, according to Dr. Can Van Luc, a fluctuation of the USD/VND exchange rate above 3% is acceptable. Since the beginning of the year, the VND has appreciated by 0.7% - 0.8% against the USD. Dr. Can Van Luc predicts that the basic exchange rate will remain stable for the whole year of 2023, and if the VND depreciates, it will only be by about 0.5 - 1%.

With such low returns, it's clear that the US dollar is not a viable investment option.

Meanwhile, many believe that lower interest rates will benefit the real estate market. However, according to Mr. Nguyen Van Dinh, Vice Chairman of the Vietnam Real Estate Association and Chairman of the Vietnam Real Estate Brokers Association, interest rates for home loans have decreased but not significantly, still fluctuating around 13% per year. Mr. Dinh stated that an interest rate below 10% per year would be more appropriate.

In the real estate market, the barriers lie not only in high interest rates but also in the difficulty in accessing loan capital.

Among investment channels, gold seems to be the most promising. Currently, gold has fallen significantly after reaching its all-time high ($2,085.4/ounce) on May 5, 2023.

In the morning session of May 24th in the Asian market, the price of gold was trading at $1,973.9 per ounce, down approximately $111.5 per ounce, or 5.3%, from its all-time high. Therefore, this precious metal has significant room for further gains, especially in the context of the debt ceiling potentially leading to a US default.

Source: https://www.congluan.vn/lai-suat-huy-dong-giam-kenh-dau-tu-nao-hieu-qua-post248893.html