Bao Viet Securities Company (BVSC) has released the July macro report and stated that the system liquidity will continue to be abundant in August.
According to BVSC, in July, the State Bank of Vietnam (SBV) did not make any significant injection/ withdrawal via the Open Market Operation (OMO). However, the liquidity of the system remained abundant, seen through the record low level of interbank interest rates (0.15 0.3 percent per annum for terms of overnight, one week and two weeks).
BVSC expected the credit in the second half (H2) of the year to be improved in H1 of 2020. However, the improvement level will not be very significant, especially in the context when Covid-19 epidemic has returned to Vietnam, making businesses to maintain a prudent view of business prospects, thereby limiting the expansion of production and business.
In addition, since the US dollar/dong exchange rate is falling to the SBV’s buying price range, thereby helping improve the foreign exchange reserves, so it is likely that a new amount of dong will be injected into the banking system. On that basis, the banking system liquidity is forecasted to remain positive in August.
After drastically cutting operating interest rates twice in H1, BVSC predicted that the SBV will not focus on the target of future reducing interest rates in H2. Instead, the SBV will shift its focus on trying to lower interest rates to other goals such as removing barriers that make it difficult for businesses to access capital after the Covid-19 epidemic, loosening credit growth room for banks, or even refinancing for public investment projects with high dispersion.
For the exchange rate, in July, the central exchange rate and the actual exchange rate at commercial banks share the same downward trend as compared to June with reduction of respectively 0.06 percent and 0.12%. Notably, the exchange rate at commercial banks at the end of July was only 23,170 dong per US dollar, lower than the buying rate of the SBV’s Operations centre (23,175 dong per US dollar). This may lead to the SBV’s move to buy foreign currencies, thereby increasing the foreign exchange reserves.
The cooling trend of the US dollars in the world market is the main reason for the US dollar/ dong exchange rate decrease in July. Compared to the end of 2019, the US dollar Index in the end of July dropped by three percent. In addition, the maintenance of a large trade surplus of the country (reaching 6.5 billion US dollars in the first seven months of the year) helped maintain the supply of US dollars.
