The weekly currency market report recently released by Saigon Securities Incorporation (SSI) Retail Research, after two consecutive weeks of net withdrawal, in the week of January 14th18th, the State Bank of Vietnam (SBV) net injected 4.962 trillion dong via Open Market Operation (OMO), in which the injection was 52.815 trillion dong and withdrawal was 47.853 trillion dong with buying forward interest rate maintained at zero.
From the beginning of the year, the SBV has purchased over one billion US dollars and the Governor said that the agency is likely to buy an addition of one to two billion US dollars as the foreign currency supply is currently quite abundant. This transaction has both increased the foreign exchange reserves and supply of the dong, supporting banks’ liquidity. Thanks to that, the dong interest rates on the interbank market quickly cooled down and the overnight rate continuously dropped from five percent per annum on the last trading day of 2018 to 3.93 percent per annum on January 17th 2019 before slightly increased to 4.2 percent per annum on January 18th 2019.
However, the US dollar interest rate on the interbank market increased, in which the overnight rate rose from 2.36 percent per annum to 2.46 percent per annum, making the difference between dong and US dollar interest rates to fall from 2.64 percent per annum in the end of 2018 to 1.74 percent per annum at the present time.
The mobilisation interest rates on market 1 remained unchanged on terms of less than one year and slightly increased on terms of 12 and 13 months at some large state-owned banks and some medium-scaled joint stock banks, ranging from 6.8 percent to 8.0 percent per annum. Currently, since the dong liquidity of the banking system is fairly stable, SSI Retail Research said that the interest rates are likely to level off from now until the end of the Tet holiday.
On the foreign currency market, the US dollar/dong exchange rate in the past week fluctuated within a narrow amplitude. Banks’ foreign exchange rate jumped by five dong per US dollars to 23,155 23,245 dong per US dollar, while the free exchange rate fell by 10 dong per US dollar to 23,200 23,220 dong per US dollar. Although the trading foreign exchange rate has continuously declined in the past three weeks, the SBV continued to raise the reference exchange rate to 22,862 dong per US dollar in the last week, up by 27 dong per US dollar, corresponding to a ceiling exchange rate of 23,548 dong per US dollar at commercial banks, the much higher than the current exchange rate.
The continuous purchase of foreign currency to increase reserves and the abundant foreign currency supply while external pressure is easing, will support the stability of the dong during this period.
