The liquidity of the banking system was in less tension in the first week of July (from July 1st to July 5th) as the interbank interest rates declined again. Specially, in the week, the dong interbank rates simultaneously fell on key terms compared to the previous week (down by 0.5 0.7 percentage point depending on the term).
Notably, the interbank rates decreased even when the State Bank of Vietnam (SBV) slightly withdrew money. Accordingly, in the week the SBV offered 35 trillion dong of bills, slightly up by two trillion dong compared to the previous week. The term of the bills was still seven days and interest rate was three percent per annum. As a result, credit institutions (CIs) absorbed all the ask volume. In the week, 32.999 trillion dong of bills matured, which means that the SBV net withdrew more than two trillion dong via bill channel. The current volume of bills in circulation has increased to 35 trillion dong.
On mortgage channel, no transaction was recorded, although the SBV regularly offered one trillion dong each session on seven-day term and at interest rate of 4.75 percent per annum. With 12 trillion dong of maturity in the week, the circulation volume has declined to zero, which means that the SBV withdrew an addition of 12 trillion dong via mortgage channel.
On both channels, the SBV slightly withdrew 14 trillion dong from the market in the past week.
This development is completely contrary to the last week of June (From June 24th to June 28th) when the SBV net injected nearly 47 trillion dong into the market to support CIs’ liquidity. At some sessions, the SBV had to raise the injection to 12 trillion dong, instead of regularly offering one trillion dong per session in the previous time. Thanks to that, after sharply rising to 3.7 percent per annum, the overnight, one-week and two-week interest rates quickly fell towards the end of the week.
According to a banking expert, the system liquidity’s unexpected tension in the last week of June was partly due to the very sharp increase of credit in this time. According to the SBV, as of June 10th, the credit growth was only 5.75 percent, but it was already 7.33 percent by the end of the month; equivalent to an increase of up to 1.58 percentage points within just 20 days, much higher than the average monthly credit growth of the previous months, said the expert.
In addition, the continuous capital withdrawal of the SBV has also made the system liquidity less abundant compared to the previous time. Statistics of Bao Viet Securities Company showed that in the first half (H1) of the year, the SBV net withdrew a total of 77.507 trillion dong.
“However, thanks to the timely money injection to support CIs’ liquidity, the interbank rates have cooled down again in the end of the last week of July, and this development continued in the first week of July,” said the expert.
Cautious monetary policy management
According to Dr Vo Tri Thanh former deputy director of the Central Institute for Economic Management, although the world market fluctuated complicatedly in the first months of the year, the SBV’s monetary policy management was still appropriate and closely followed market developments, to ensure the harmonisation of the goals set out to control inflation, stabilise foreign exchange rate and interest rates, support economic growth, etc.
Dr Thanh also believed that the SBV will continue to maintain the current monetary policy management. However, due to the complicated geopolitical instability and global economic developments, especially the US China trade war, Dr Thanh recommended that the management of the monetary policy should closely follow market developments, with more initiative combined with flexibility in using monetary tools.
Analysing more specifically, KB Securities Company said that in the remaining months of 2019, the exchange rate pressure will not be much in the base scenario, while inflation will remain under control, but the core inflation will tend to increase rapidly. Therefore, the SBV is likely to maintain the current prudent monetary policy management with slight growth in M2 compared to 2018, while credit growth is maintained at similar rate as last year. “The M2 and credit growth in 2019 will be respectively 13 percent and 14 percent,” KB forecasted.
Sharing similar point of view, MB Securities Company (MBS) predicted that the SBV will operate a cautious monetary policy in 2019. Accordingly, the operating interest rate is forecasted to rise by 0.25 percent, credit growth is expected at 14 percent, M2 growth is 14 percent, target inflation is four percent, and the exchange rate will slightly fluctuate below three percent. “The credit growth will go down slightly and interest rates will inch up due to the SBV’s prudent management policy, but it is not worrying,” stated MBS.
Speaking at the online conference on preliminary review of banking operations in H1 and implementing the tasks in H2 of 2019, the SBV’s Governor Le Minh Hung affirmed that the agency will continue to actively, flexibly and cautiously operate the monetary policy, with harmonious coordination with fiscal policy and other macroeconomic policies in order to control 2019 inflation below four percent as targeted, maintain macroeconomic stability, support the economic growth at a reasonable level, and stabilise the capital and foreign exchange markets.
