Topic: Interbank

In the money market last week (September 19 to September 23), the State Bank of Vietnam (SBV) continued to use open market operation tools to maintain sufficient liquidity in the system and indirectly move on the interbank interest rate level. At the end of the week, the central bank net withdrew VND34.6 trillion ($1.46 billion) through the open market channel and VND23 trillion ($967 million) through foreign currency sales. It recently increased some operating interest rates, after nearly eleven years since the last increase. Rates such as discount rates and refinancing rates were raised by 1 per cent.

The State Bank of Vietnam (SBV) has simultaneously increased the refinancing interest rate to 5 per cent per annum, the rediscount rate to 3.5 per cent per annum, the maximum interest rate for demand deposits and terms of less than one month to 0.5 per cent per annum, and term deposits from one month to less than six months to 5.0 per cent per annum. Rates on overnight loans in interbank electronic payments and loans from the SBV to cover capital shortfalls in clearing payments to credit institutions and foreign bank branches is 6.0 per cent per annum.

At the end of the session on September 6, the interbank interest rate for VND loans was 5.44 per cent per annum for an overnight term, only slightly lower than the last peak of 5.56 per cent per annum in February 2016. Liquidity in the system is still tight and interbank interest rates continue to increase despite the State Bank of Vietnam’s intervention.

The interbank VND interest rate has fallen from 5.13 per cent per annum to 2.67 per cent, significantly narrowing the gap between VND and USD rates. This may put pressure on the exchange rate in the near term.

Recent withdrawals by the State Bank of Vietnam (SBV) have been unprecedented. In just a short period of time, on the open market channel alone, the SBV has net withdrawn more than VND160 trillion ($6.85 billion). However, the VND interbank interest rate still fell sharply because credit growth slowed, making system liquidity redundant.