According to the weekly capital market report of the week from October 14th to October 18th 2019 announced by Saigon Securities Incorporation (SSI), the State Bank of Vietnam (SBV) issued 87 trillion dong of seven-day bills at interest rate of 2.25 percent per annum, while up to 90 trillion dong of bills matured in the week. There was no new transaction on the Open Market Operation (OMO) channel, only 495 billion dong of buying forwards were settled, bringing the OMO balance to zero.
Overall, the SBV net injected 2.505 trillion dong on the OMO.
SSI said that the liquidity of the interbank market remained very abundant, and interest rates continued to deeply fall to below two percent on both overnight and one-week terms.
Specifically, the dong interbank rate dropped by 0.32 percentage point on overnight term and 0.38 percentage point on one-week term, reaching respectively 1.68 percent and 1.92 percent per annum. At the current level, the dong interbank rates are much lower than the US dollar rates. The overnight dong-US dollar interest rate difference has changed to negative 0.24 percentage point after 14 months being positive.
“This interest rate difference is likely to soon return to zero when the US Federal Reserve (Fed) further cuts interest rate by 0.25 percent per annum in the meeting to be held in late October. At present, the possibility of the Fed cutting rates to 1.5 1.75 percent per annum is increasing to nearly 90 percent (according to Bloomberg). With abundant liquidity and positive market sentiment, the interbank rates will continue to fluctuate around 1.6 two percent per annum and there is possibility that the SBV will cut the bill interest rate for the fourth time in the near future,” SSI forecasted.
Nevertheless, on market 1, the mobilisation interest rates remained at 4.35.5 percent per annum on terms of less than six months, 5.5 7.5 percent per annum on terms from six to less than 12 months, and 6.4 8.1 percent per annum on terms of 12 and 13 months.
“The high capital mobilisation demand to serve the capital needs in the end of the year peak business season and to meet the roadmap on reducing the use of short-term funds for medium and long-term lending to 30 percent of the SBV will make it difficult for long-term interest rates to be lowered. At the same time, differentiation will be stronger, thereby expanding the mobilisation interest rate difference between the bank groups,” said SSI’s experts.
The negative dong-US dollar interest rate difference on the interbank market has increased the pressure on the exchange rate. However, according to SSI, the excessive foreign currency supply and stable international developments made the US dollar/dong exchange rate to almost going sideways.
Closing the week, the exchange rates at banks and on free market both increased by five dong per US dollar in both buying and selling directions, reaching respectively 23,115/ 23,265 dong per US dollar and 23,190/ 23,205 dong per US dollar. The central exchange rate stayed unchanged at 23,154 dong per US dollar.
