As usual, after the high season of the Lunar New Year, cash flow returns to the banking system, the main regulating channels have reversal movements and reduce the dose.
Supporting liquidity in the peak season, the State Bank of Vietnam (SBV) often injects capital and suspends the withdrawal channel. After the peak season, the capital injection channel stops temporarily when the cash flows return to the system quickly, and then the operator only needs to draw money back. Those flows are more evident in the early months of recent years, associated with large net buying of foreign currencies.
When the SBV regulates the capital, normally only one way is opened, the withdrawal channel is opened when it needs to reduce capital supply and the injection channel is opened when the system liquidity needs support. This one-way direction is associated with the role of the operator when there is a lack or a surplus of resources in the system that its member cannot balance and when the operator wants to drive the balance to a certain goal.
In recent years, in the injection channel, the SBV has mainly offered on the pledge channel on the open market (OMO); in the withdrawal channel, it mainly through Treasury bill issuance channel.
Over the past month, the SBV has been at the same time pumping capital through OMO and drawing capital back through bills. This development has been rarely seen before, although the absorption levels in these two channels are different and not large.
This phenomenon shows that, in the system, at the same time, some members temporarily in need of capital to support the liquidation are borrowing of the SBV’s capital through OMO while other members are temporarily remitting capital into the SBV’s treasury bills. Accordingly, the two needs among these members partially failed to meet each other.
The point of interest is that, at present, the capital surplus is deposited in the SBV at an interest rate of only three percent per year while the capital borrowed through OMO is subject to an interest rate of 4.75 percent per year (along with seven-day term).
Why do those members look to the SBV instead of lending to and borrowing from each other at better interest rates while they are in the same system and all join the interbank market?
This phenomenon can be seen in the transitional period, in which there is a lag to return to the normal one-way direction regulation of SBV. Another explanation is that there may be some obstacles in the interbank market and the connection among commercial banks.
However, with current circulating balance and opening amount at both channels, the scale is not so large, so the capital supply and demand in the system is generally balanced.
