One of the successes of the State Bank of Vietnam (SBV) in managing monetary policy in the first months of the year recognised and appreciated by members of the National Financial and Monetary Policy Council was that SBV used synchronising the set of monetary policy instruments, primarily open market instruments, to regulate the money supply to control inflation and contribute to macroeconomic stability; while remaining supporting economic growth, stabilising money and foreign exchange markets.
According to SBV’s report at the press conference on banking performance in Q3/2019, taking place from October 1 to September 24, 2019, the total means of payment (M2) increased by 8.58 percent compared to the end of 2018. This increase was entirely in line with the target of total payment means to increase about 13 percent, credit growth of about 14 percent this year to control inflation, stabilise macroeconomics; but still ensure the liquidity of credit institutions. The liquidity of credit institutions was guaranteed not only to create conditions for credit institutions to boost credit but also to help stabilise interest rates, thereby supporting the business development and promote economic growth.
Among the movements of the monetary market from the middle of August till then, the smooth liquidity regulation of SBV always followed the supply-demand of the market and the domestic and foreign economic developments closely.
Indeed, in the last two weeks of August, the liquidity demand of the system suddenly increased, pushing the interbank offered rate up sharply. Even once, the overnight lending rate soared to 4.8 percent per year. According to securities corporation, the liquidity of the system temporarily lacked when enterprises need capital to pay salaries to employees before September 2.
In that context, SBV continuously injected money through the open market to support the system’s liquidity. Even from August 22, SBV stopped issuing treasury bills, and net injected 13.1 trillion dong through mortgage operations. generally, in the last two weeks of August, the operator had pumped more than 55 trillion dong, bringing the total net injection volume in August to 69 trillion dong after absorbing 35 trillion dong in July. As a result, the interbank offered rate cooled down.
However, since the middle of September, the liquidity of the system reversed, not only stabilised again, but there had been signs of surplus, pushing the interbank offered rate down sharply. The overnight lending rate in the interbank market sometimes dropped to 1.58 percent, equivalent to 2.42 percentage points lower than the end of August. Closing in September, the overnight lending interest rate in the interbank market fell to 2.15 percent, down by 1.8 percentage points compared to the end of August. Similarly, the one-week term rate and two-week term rate also decreased to 2.4 percent and 2.6 percent; decreased by 1.6 percentage points and 1.4 percentage points, respectively.
According to banking experts, if the excess liquidity was reasonable, it could help stabilise deposit rates, thereby maintaining lending rates. However, if the surplus was too large, it would put pressure on inflation in the future.
Not to mention, the low-interest rates of dong made the difference of VND/USD interest rates continuously narrowed. According to statistics of SBV, in the last week of September, the average dong interest rate was only 0.12 percent on the overnight term, higher than the US dollar interest rate, 0.37 percent for a one-week term, and 0.61 percent for two-week term. The narrowing of the rate gap also means that the interest in holding dong decreased, thereby creating pressure on the exchange rate.
Therefore, in the last two weeks of September, SBV stopped the mortgage business, while re-issuing bills to withdraw money. generally, in September, the operator collected 94 trillion dong.
However, because the system’s liquidity still showed substantial redundancy when capital mobilisation increased faster than credit, SBV continued to promote issuing bills with more significant volumes to withdraw money in the first week of October. During the week, SBV issued 86.995 trillion dong bills to withdraw money and replace 68.997 trillion dong matured bills.
This had supported the credit institutions in ensuring liquidity. Also, the fluctuations in deposit rates, thus, did not affect lending rates in market one, in the assessment of the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) Institute of Training and Research.
That was also the reason why members of the National Financial and Monetary Policy Advisory Council highly appreciated the management of monetary policy to achieve positive results in the context of increasing risks. The active and flexible monetary policy was also a stable fulcrum for credit institutions to promote business activities. The results of the latest ‘Business Trends’ survey conducted by SBV in September 2019 showed that the business situation continued to improve well, credit institutions expected, this year, business results to be higher than the previous year.
