The State Bank of Vietnam (SBV)’s headquarters in Hanoi. The SBV withdrew more than 1 trillion VND through the bill channel in the first week of August. (Photo: SBV)According to Saigon Securities Incorporation (SSI)’s research division, the OMOhad seen strong fluctuations last month when the SBV consecutively injected alarge amount of Vietnamese dong totalling 46 trillion VND through billissues.
In August, the SBV changed its policy, starting to withdraw cash out of the marketthrough the OMO. It withdrew more than 1 trillion VND through the bill channelin the first week of August.
However, SSI analysts noted, the SBV has still applied the interest ratebidding method in the OMO, with a floor rate of 3.5% per year, with an aim tokeep the interbank lending interest rates at high levels.
Under the SBV’s move, the interbank lending interest rate has hit a new high,accelerating from 0.3-0.5% per year to some 5% per year in the few weeks. OnAugust 8, the interbank interest rate for dong loanswas at 4.42% per year for overnight terms and 4.49% per year for one-weekterms.
According to the analysts, the SBV’s move to keep interest rates of dong loans in the interbank market at ahigh level is aimed at making a positive gap in lending interest ratesbetween dong and US dollarloans, which will help reduce the need to hold the greenback among banks andindirectly cool down the foreign exchange rate.
By the end of last week, the USD/VND exchange rate on the interbank channel wastraded at 23,389 VND per dollar, lower than the SBV’s selling price of 23,400VND per dollar.
The listed exchange rate at Vietcombank was at 23,250 VND and 23,530 VND perdollar for buying and selling, respectively, unchanged from last week.
Meanwhile, the exchange rate on the free market dropped sharply to 23,930 VND and24,020 VND per dollar for buying and selling, significantly narrowing the gapcompared to the official market.
According to SSI, although the exchange rate has cooled down, thepressure is still relatively high as the market has not yet determined thetime and extent of interest rate hikes by the US Federal Reserve (Fed).
SSI forecast the SBV might have to take stronger measures to stabilise theexchange rate at the end of the year when the Fed’s dollar interest rate isexpected to reach 3.5-3.75% per year in December.
Therefore, SSI suggested the interest rate of dong loans on the interbank channel needs to hit a higher level to reducepressure on the exchange rate.
According to Tran Ngoc Bau, General Director of financial data providerWiGroup, the strong surge of the overnight interbank interest rate from 0.3-0.5%per year to some 5% per year in the past few weeks showed the SBV no longermaintained its loose monetary policy in the interbank market.
In addition, he said, the fact that the SBV actively withdrew money through thebill issue channel, and at the same time limited the credit growth quota forbanks, can be seen as signs of tightening monetary policy.
The SBV’s moves were mainly aimed to stabilise the USD/VND exchange rate, Bausaid.
Vietcombank Securities Company (VCBS) also believes the SBV's recentinterventions in the money market were aimed to reduce inflation and exchangerate pressures.
However, VCBS said, the fact that the Fed is still raising interest rateswill make the greenback appreciate and maintain relative strength compared toother currencies. In this context, VCBS forecasts that the dong may depreciate by 3% against thedollar this year.
With the interbank interest rate, VCBS said the pressure from inflation hasmade the SBV act more cautiously and cannot maintain the abundant liquidity forbanks.
However, VCBS expects the liquidity pressure in the interbank market will onlyhappen in the short term and interest rates will gradually cool down at the endof the year, but are unlikely to return to low levels as per the averagethreshold of 2021./.
VNA
