State Bank of Vietnam (SBV)’s headquarters in Hà Nội. The SBV withdrew more than VNĐ1 trillion through the bill channel in the first week of August. Photo SBV

Compiled by Thu Hà

HÀ NỘI — The open market operations (OMO) have been more stable this month after the State Bank of Vietnam (SBV) reduced its intervention in the market.

According to Saigon Securities Incorporation (SSI)’s research division, the OMO had seen strong fluctuations last month when the SBV consecutively injected a large amount of Vietnamese đồng totalling VNĐ46 trillion through bill issues.

In August, the SBV changed its policy, starting to withdraw cash out of the market through the OMO. It withdrew more than VNĐ1 trillion through the bill channel in the first week of August.

However, SSI analysts noted, the SBV has still applied the interest rate bidding method in the OMO, with a floor rate of 3.5 per cent per year, with an aim to keep 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 cent per year to some 5 per cent per year in the few weeks. On August 8, the interbank interest rate for đồng loans was at 4.42 per cent per year for overnight terms and 4.49 per cent per year for one-week terms.

According to the analysts, the SBV’s move to keep interest rates of đồng loans in the interbank market at a high level is aimed at making a positive gap in lending interest rates between đồng and US dollar loans, which will help reduce the need to hold the greenback among banks and indirectly cool down the foreign exchange rate.

By the end of last week, the USD/VNĐ exchange rate on the interbank channel was traded at VNĐ23,389 per dollar, lower than the SBV’s selling price of VNĐ23,400 per dollar.

The listed exchange rate at Vietcombank was at VNĐ23,250 and VNĐ23,530 per dollar for buying and selling, respectively, unchanged from last week.

Meanwhile, the exchange rate on the free market dropped sharply to VNĐ23,930 and VNĐ24,020 per dollar for buying and selling, significantly narrowing the gap compared to the official market.

According to SSI, although the exchange rate has cooled down, the pressure is still relatively high as the market has not yet determined the time and extent of interest rate hikes by the US Federal Reserve (Fed).

SSI forecast the SBV might have to take stronger measures to stabilise the exchange rate at the end of the year when the Fed’s dollar interest rate is expected to reach 3.5-3.75 per cent per year in December.

Therefore, SSI suggested the interest rate of đồng loans on the interbank channel needs to hit a higher level to reduce pressure on the exchange rate.

According to Trần Ngọc Báu, General Director of financial data provider WiGroup, the strong surge of the overnight interbank interest rate from 0.3-0.5 per cent per year to some 5 per cent per year in the past few weeks showed the SBV no longer maintained its loose monetary policy in the interbank market.

In addition, he said, the fact that the SBV actively withdrew money through the bill issue channel, and at the same time limited the credit growth quota for banks, can be seen as signs of tightening monetary policy.

The SBV’s moves were mainly aimed to stabilise the USD/VNĐ exchange rate, Báu said.

Vietcombank Securities Company (VCBS) also believes the SBV's recent interventions in the money market were aimed to reduce inflation and exchange rate pressures.

However, VCBS said, the fact that the Fed is still raising interest rates will make the greenback appreciate and maintain relative strength compared to other currencies. In this context, VCBS forecasts that the đồng may depreciate by 3 per cent against the dollar this year.

With the interbank interest rate, VCBS said the pressure from inflation has made the SBV act more cautiously and cannot maintain the abundant liquidity for banks.

However, VCBS expects the liquidity pressure in the interbank market will only happen in the short term and interest rates will gradually cool down at the end of the year, but are unlikely to return to low levels as per the average threshold of 2021. — VNS