In the last week, the State Bank of Vietnam (SBV) withdrew 72.380 trillion dong as 101.061 trillion dong matured via Open Market Operation (OMO) channel and the SBV only newly bought 28.682 trillion dong on seven-day term. The volume of OMO in circulation continuously dropped from more than 150 trillion dong before the Lunar New Year holiday to 28.7 trillion dong.
The bill channel still had no transaction and maintained a balance of zero. The abundant liquidity has made the interbank interest rates to sharply decline on all terms. The overnight rate is currently 3.97 percent per annum and one-week rate is 4.13 percent per annum.
The mobilisation interest rates did not record any adjustment and still stayed at 4.5-5.5 percent per annum on terms of less than six months, 5.5-7.6 percent per annum on terms from six months to less than 12 months, and 6.8-8.0 percent per annum on 12 and 13-month terms.
The strong reduction of the dong interest rates on the interbank market has helped the dong and US dollar interest rate difference tend to narrow. The attractive buying rate facilitated the SBV to continuously buy in a large volume of foreign currency in the first two months of the year, in the context when the international market did not see many changes. For the above reasons, analysis team of Saigon Securities Incorporation (SSI) forecasted that the dong/US dollar exchange rate will continue to be stable around the SBV’s buying rate of 23,200 dong per US dollar.
The return of cash flows into the banking system after the Lunar New Year holiday and the SBV’s foreign currency purchases may make the dong interest rates on the interbank market to continue to decline slightly. However, according to SSI Retail Research, the possibility of a mobilisation interest rate reduction is currently low, because banks also need to increase mobilisation for support credit activities when the ratio of short-term fund used for medium and long-term lending has fallen from the beginning of the year and in the current international context.
On February 20th, the US Federal Reserve (Fed) has announced the minutes of the meeting in late January with contents fairly similar to the statement of the Chair of the Fed right after the meeting, affirming that the Fed will continue to observe the market risks before making decisions on interest rates. Nevertheless, the notable point is that although the views of Fed officials are fairly different when discussing the need to raise interest rates once again, no interest rate cuts were proposed. Currently, the probability of the Fed to keep interest rates at the current level (2.25-2.5 percent) is 97.1 percent (according to Bloomberg) and the possibility of an interest rate hike in 2019 is 2.9 percent.
