In the last trading session before the Reunification Day on April 30th and May Day on May 1st, the dong interest rates on the interbank market plummeted to the bottom in the past six months.
Specifically, in the April 26th trading session, the dong interbank rates recorded strong decline on all terms, continuing the trend seen in the previous week.
According to updates of market participants, closing the week before this long holiday season, the dong interbank rates were only around 2.5 percent per annum on overnight term, 2.75 percent per annum on one-week term, 3.13 percent per annum on two-week term, and 3.48 percent per annum on one-month term.
These are the lowest interest rates in more than half a year, since the end of the third quarter 2018, as the results of the rapid downturn momentum, while they were fairly high a few weeks ago (overnight rate maintained above four percent per annum).
Meanwhile, the US dollar interbank rates only saw slight changes. In the session on April 26th, the rates were 2.5 percent per annum on overnight term, 2.6 percent per annum on one-week term, 2.69 percent per annum on two-week term, and 2.84 percent per annum on one-month term.
With these movements, on overnight and short terms, the dong interest rates have fallen closed to the US dollar interest rates on the interbank market. The difference in interest rates between these two currencies often affects the US dollar/dong exchange rate when it is narrowed down or the swap point is negative. In the week, the US dollar/dong exchange rate recorded the first noticeable increase in the markets since the beginning of 2019 until now.
As mentioned by BizLIVE in the previous newsletter, in order to regulate the sources in the system when there was a sign of dong excess in the recent week, the State Bank of Vietnam (SBV) has quickly returned to issuing bonds to withdraw money.
During the week, the SBV significantly raised the bill offering to 50 trillion dong on seven-day tenor and at interest rate of three percent per annum. Credit institutions nearly absorbed all of this offering, making the volume of bills in circulation in the market to increase to 49.999 trillion dong.
Generally, in the week before the holidays, the SBV net withdrew 44.693 trillion dong from the market via Open Market Operation (OMO) channel.
A turning point has been marked after April 18th, which is that a downtrend has started for dong interest rates, and US dollar/dong exchange rate has tended to rise, reflected through regulating channels as well as the movements of the dong interest rates and the US dollar/dong exchange rate on the interbank market.
Previously, the SBV continuously purchased a large amount of foreign currency. That led to a requirement to neutralise the amount of dong put into circulation and seen through the large volume of bill issuance mentioned in the above.
In another development, the capital flows in the market continued to show abundance and partly reflected in the State Treasury’s capital mobilisation channel through government bond bidding.
Specifically, in the week, the State Treasury continued to successfully mobilise 5.125/5.750 trillion dong of government bonds at high winning rate of 89 percent.
