On May 12, the State Bank of Vietnam (SBV) issued 3 decisions to reduce key interest rates in order to implement the guidelines and directions of the Government and the Prime Minister to deploy tasks and solutions to overcome difficulties for business and production, ensuring social security in response to Covid-19 epidemic.
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Accordingly, reducing the refinancing interest rate from 5.0% per annum (p.a) to 4.5% p.a; rediscount interest rate from 3.5% p.a to 3.0% p.a; overnight lending interest rate in inter-bank electronic payment and lending to offset the capital shortage in the clearing of the SBV with banks from 6.0% p.a to 5.5% p.a.
Accordingly, the maximum interest rate for demand deposits and terms with less than 1 month decreased from 0.5% p.a to 0.2% p.a; The maximum interest rate for deposits with terms from 1 to less than 6 months decreased from 4.75% p.a to 4.25% p.a (affecting many organizations/individuals with short-term deposits, including us); The maximum interest rate for deposits with terms from 1 to less than 6 months at People’s Credit Funds (PCF), Microfinance Institutions (MFIs) decreased from 5.25% p.a to 4.75% p.a.
Decision No. 920/QD-NHNN dated 12/5/2020 about the maximum short-term lending interest rate in VND of credit institutions for borrowers to meet capital needs to serve some key sectors and economic sectors according to The provisions of Circular No. 39/2016/TT-NHNN dated December 30, 2016 decreased from 5.5% p.a to 5.0% p.a; The maximum short-term loan interest rate in VND of PCFs and MFIs for these funds needs decreased from 6.5% p.a to 6.0% p.a.
The enforcement effect of this interest rate cut is from May 13, 2020.
“As repeatedly emphasized in the discussion items, we follow Mr. Buffett, Munger and many other legendary value investors, almost no macro forecasts and only act in accordance with the current status: i.e when in the cold, we “wrap ourselves in the blanket” defensively; And when it’s hot, we “open the door” and go out hunting aggressively … We’re not trying to predict uselessly how many degrees Celsius it will rise and how many more days it will last…
– In short term (2019-2020)
We have warned for 2 years about the risks of high-priced bluechips, cyclical risks, or high debt stocks – especially USD/EUR foreign currency debt, which is extremely risky, which might be “fleeing” from at any price if the monetary war spreads to Vietnam and causes a terrifying “capital flight” situation.
Therefore, individual investors need to stay away from this group of stocks, keeping a relative proportion (15%-20%) in the portfolio of high liquidity assets such as short-term deposits, short-term bonds and especially gold before the move to print money, buying in gold reserves for the currency devaluation effort of China and some other countries like Russia.
– Medium and longer term (2021-2022 to beyond)
To avoid the regretful lesson of author Benjamin Roth of 1934-1935 who did not have enough money to buy cheap sustainable land and stocks, we need to actively increase income, increase the savings/total income ratio and really patient, patient and patient!
In the long run, devaluation will benefit asset owners by improved valuation. So if we are holding good assets, there is no need to worry if it declines in the short term, in fact it is even a great opportunity for us to accumulate more. On the other hand, when we have a large amount of idle money, we should not rush to buy all real estate/securities when seeing them rising up sharply in the short term. We should carefully analyze, choose good properties/businesses, wait patiently for the margin-of-safety price then buy it slowly.
When we accept the truth that Thomas Jefferson summed up: “Paper money is liable to be abused, in every country which it is permitted“, we will take great comfort, we will understand the laws of movement of the economic and monetary cycle, from which to make intelligent use, to get closer to the path of eternal financial freedom.”
(quote and translate from S.A.F.E team – The Golden Newsletter Vietnam)