Interbank interest rates fluctuate because of the move of the State Treasury
According to the weekly money market report from April 29 to May 3, 2019, SSI Securities Company announced the liquidity of commercial banks abruptly abounded in the last week of April, which made the interbank interest rate drop sharply to 2.98 percent per year with the overnight term, the lowest level in the last six months.
However, after the holiday, the overnight interest rate was back to 3.58 percent per year even though the State Bank of Vietnam (SBV) operated quite limited in the open market with 209 billion dong for seven day period and there was no transaction of treasury bills.
SSI said that interest rate movements in the interbank market in recent days related much to the cash flow from the State Treasury (ST) to the banking system.
Specifically, in the last week of April, a relatively large amount of money transferred from the State Treasury into the banking system, while commercial banks were increasing their dong reserves because the liquidity had signs of tension in the previous week.
“This has caused commercial banks to quickly liberate the dong and push the interest rate in the interbank to fall sharply. After the liberation of this amount of money and the generation of the cash flows of the State Treasury, interest rates in the interbank quickly returned to the old ground “, SSI said.
This securities company said that the interbank interest rate would be maintained at 3.5 percent4.0 percent per year to ensure the difference of interest rate in dong and US dollar at 1.0-1.5 percent per year in the context of increasing exchange rate pressure from international developments.
In market one, some banks reduced 0.2-0.3 percentage points with term from one to less than six months, to 4.1 percent -5.5 percent while maintaining level of 5.5 -7.5 percent for terms of six to under 12 months and 6.4-8 percent per year for 12 and 13 month terms. In addition, some banks apply short programmes on the occasion of April 30 and May 1 with the best deposit rate up to 8.5 percent per year for 13-month term.
SSI recognises that deposit rates will remain at current levels because banks still need to ensure capital sources to carry out credit growth targets. Secondly, the promotion of lending to individual customers with better interest rates will be the basis for commercial banks to maintain the current deposit interest rates. Thirdly, the need to increase the mobilisation balance to meet the roadmap to reduce short-term capital for medium and long-term loans from the current 40 percent to 30 percent is also a factor to help deposit rates keep stable.
SSI said that the information of United States GDP growth in the first quarter of 2019 far surpassed the forecast, up to 3.2 percent, causing the US dollar to increase strongly, the DXY index soared to 98.2 on April 25, 2019. After that, it gradually cooled down and is now at 97.5 after euro recovered thanks to the information on growth and unemployment of Europe.
The international movement along with the sudden narrowing of the interest rate gap in dong and US dollar in the interbank market had a strong impact on the market sentiment, causing the USD/VND exchange rate to rise on both banks and the free market by 70 dong and 115 dong per US dollar respectively.
However, after the holiday, the DXY index decreased, the dong and US dollar difference was restored to over one percent per year, making the market more stable, the exchange rate was also adjusted down by 20 dong per US dollar in the interbank, currently at 23,210/23,310 and down 50 dong per US dollar in the buying direction, 45 dong per US dollar in the afternoon in the free market, currently at 23,275/23,295.
When all parties are optimistic about the prospects of a US-China deal at the end of May, today, President Donald Trump suddenly announced that he would raise taxes from 10 percent to 25 percent with $200 billion of Chinese goods from May 10 and is expected to soon impose 25 percent tax on $325 billion of other goods. Chinese yuan immediately depreciated 0.8 percent against the US dollar, currently at 6,787 yuan per US dollar.
According to SSI, the pressure on the USD/VND exchange rate has increased significantly compared to the first quarter of 2019, including pressure from international developments, the supply of US dollar has decreased after about eight billion US dollar in foreign exchange reserves (from the beginning of the year) and trade balance are less favourable. “Therefore, it is likely that USD/VND will trade in a new level that fluctuates around 23,300 dong per US dollar,” SSI said.
Although the exchange rate pressure has increased, SSI expects that there are still grounds to believe that the USD/VND exchange rate will be well controlled such as operating experience of the government and SBV; significant increase in foreign exchange reserves has strengthened resources for SBV to stabilise the market if there is a strong fluctuation; the prospect of increasing FII capital from big capital selling deals and the fact that China will have to control the local currency.
