5.1 Conclusions from the research results
Domestic and international studies have shown that the stock market was significantly affected by macroeconomic fluctuations, especially from central bank's monetary policy. Based on the study of impact of monetary policy on the stock market of Vietnam, the thesis has clarified the following contents:
5.1.1 Impact of monetary policy on share price in Vietnam’s stock market
The results of estimating the SVAR model with 7 variables including IPI, CPI, M2, IR, VNI, OIL and FFR show that during the study period, the expansion (tightening) of the monetary policy has increased (decreased) share price in the stock market immediately after 2 months and lasts up to 6 months later. VNI reacted in the same way to the increase in money supply and in the opposite direction to the rise of interbank rates. However, the reaction of VNI to the change of money supply is stronger than that of interbank rates. The variance decomposition shows that from January 2002 to December 2007, the impact of monetary policy on the stock market was not as strong as in the period from January 2008 to December 2016.
The results from the model show that VNI is sensitive to changes in commodity prices.
When there was a sudden increase in CPI, VNI also dragged down after 2 months and continued to decline sharply. This is empirical evidence as a reference for policymakers: maintaining a stable inflation rate in the economy does not only help stabilize the macro economy, increase employment but also promote stable development of the stock market.
5.1.2 Impact of monetary policy on liquidity of Vietnam’s stock market
To verify whether the monetary policy affects the liquidity of the Vietnamese stock market, and the extent and impact of the factors in monetary policy on the market on liquidity if any, the thesis used the VAR model with three groups of variables including: stock market liquidity, monetary policy variables and control variables.
Research shows that when the State Bank loosens (tightens) monetary policy by increasing (decreasing) money supply, it will increase (decrease) the liquidity of the
stock market. In addition, inflation has the negative effect on all liquidity variables, showing the liquidity of the stock market will suffer when there is an increase in consumer price index.
5.1.3 The mechanism of monetary policy’s impact on stock price and liquidity in Vietnam’s stock market
The research results clarify the mechanism of impact of monetary policy on the stock market in Vietnam as follows:
First, when the SBV increases the total means of payment (or money supply), it has the effect of lowering interest rates in the market. According to the monetary theory, the expansion of money supply will increase the demand for securities, leading to the increase of stock prices on the stock market. As the SBV expands the currency, it has the effect of increasing the demand for stocks leading to a rise in share prices on the Vietnamese stock market.
Secondly, under the discounted dividend model, the expansion of money supply reduces the market interest rate, including the borrowing rate of enterprises, thereby stimulating enterprises to increase investment and expand production and increase profitability. This mechanism is also evident in Vietnam, which can be inferred through the performance reports of listed companies in the period of loosening monetary. According to the annual report of the SSC in 2008 and 2011 (these are two years of tightened money supply), the performance of listed companies was lower than that of the previous year. But over the years 2009, 2010 and the period 2013 -2016, a report from SSC showed that business results of companies significantly improved and many companies achieved high growth.
Thirdly, the mechanism of impact of monetary policy on the liquidity of the stock market in Vietnam is proven through its impact on the marginal borrowing of investors. As the SBV loosened its monetary policy by increasing its money supply and lowering lending rates on the market, this canurge investors to increase margin borrowing to buy stocks. As a result, the market liquidity increases sharply. On the contrary, in the periods when the SBV tightens monetary policy, interest rates increase, and when SBV imposes more restrictions on securities investment loans on credit institutions, stock market liquidity takes the plunge.
5.2 Recommendations for the administration of monetary policy 5.2.1 Moves from controlling money supply to controlling interest rates
Judged by the way SBV implemented its monetary policy, SBV has shown that it uses money supply M2 as intermediary objective.
Choosing to control money supply will cause interest rates in the market to fluctuate according to money demand and the central bank can not control interest rates.
Meanwhile, in order to achieve its goal, the central bank needs to use tools to keep interest rates unchanged. Interest rates are the link between the financial system and the real economy, so steady growth also means maintaining relatively stable inflation rate (Mishkin, 2013).
In addition, the central bank does not mention the objectives of the monetary policy, but operates by regulating many factors such as market interest rates, VND / USD exchange rates and the banking system's reserves. Therefore, the SBV should consider selecting interbank interest rates the operational objectives of monetary policy, andshould switch from controlling money supply to interest rate control. SBV should announce the direction of how it regulates interest rates to the publicso that investors can monitor and predict such a move.
5.2.2. To implement the monetary policy in the direction of stabilizing prices and stabilizing the financial system
Judged from the SBV’s implementation of monetary policy from 2002 to 2011, the SBV has pursued multi-objective monetary policy in which the objective of economic growth is the most significant. However, with high inflation rates in 2008 and 2011 as a consequence of the previous expansion of money supply, the SBV limited its response to market movements, especially price volatility. Thus, price stability must be the primary goal of monetary policy in the long run, because it helps with economic growth as well as unemployment relief. The State Bank of Vietnam should consider and set a concrete roadmap, creating the prerequisites for the application of inflation- targeting monetary policy in combination with financial stability in Vietnam.
Maintaining a moderate inflation rate in the long run will not only support long-term economic growth but also contribute to the stable development of the stock market.