New macro update report published by Viet Dragon Securities Company (VDSC) made a noticeable remark: The trend of gradually shifting from tightening to easing monetary policy decreases significantly the pressure on banking liquidity in general and interbank liquidity in particular.
Specifically, after more than half a year of continuous increase and maintaining at high level, interbank interest rates are showing signs of decline at almost all terms. Evidently, overnight rates have dropped 0.37 percentage points to 3.9 percent per year in the trading session last week. The one-month term declined the most, 0.52 percent, followed by one-week term (down 0.18 point percent) and two week term (down 0.22 point percent). For three-month term, although interbank rates increased by 0.39 percent and reached 3.9 percent per year but compared to the peak of six percent recorded one month earlier, the decrease was still quite impressive.
From the operating side of the State Bank of Vietnam (SBV), VDSC realised the urgency in supporting the interbank market liquidity through decreasing forward purchase.
According to the movement in the past years, SBV alternately used ‘forward purchase’ and ‘sell valuable papers’ to regulate market liquidity. While forward purchase supports market liquidity for some times, the other tools tend to withdraw short-term liquidity in the system.
“Currently, the volume of forward purchase is approaching the threshold of zero after the period of continuous fluctuation. The scale of bidding in the last two months is smaller than the maturity volume; thereby showing that SBV mainly neutralises the amount of money pumped out and will suspend the liquidity support process “, VDSC analysed.
Besides, this securities company said that the drop in interbank interest rates at the beginning of March might be related to the foreign currency trading activity of SBV.
Specifically, at the beginning of the year, SBV raised the bid rate and boosted the forward purchase of foreign currency to improve the size of the national foreign exchange reserve in the context of a trade surplus of nearly $7 billion in 2018. According to the SBV leader, the amount of foreign currency purchased was over $4 billion. “With a three-month contract to buy foreign currency, it may be time for SBV to carry out a contract and provide a significant amount of dong to the market,” VDSC said.
In addition, following VDSC, the big difference in money supply growth and credit growth in the first two months of the year also supported the interbank interest rate scenario to decline. According to the recent announcement, money supply growth reached 2.1 percent during this period, while credit growth was only 0.8 percent. “This creates a huge difference, thereby positively impacting market liquidity,” VDSC admitted. This securities company forecasted that interbank interest rates might continue to fall in the case geopolitical tensions continue to have good changes.
