State Bank injects money into market to support liquidity

The State Bank of Vietnam (SBV) has continued net cash injections into the monetary market for three consecutive weeks to support the liquidity of the banking system.

According to the latest report of the Bao Viet Securities Company (BVSC) on the bond market, VND36.74 trillion (US$1.61 billion) were pumped into the market in the first week of June. In the two previous weeks, the central bank also pumped VND3.4 trillion into the market.

A May 2018 report by Saigon Securities Inc. (SSI) shows a drop in bank liquidity for the second consecutive month, with SBV having to inject money into the system. The injected amount in May decreased to VND10.9 trillion from VND58.6 trillion in April, and the value of traded treasury bills fell to VND55.8 trillion.

Treasury bill issuance is the main measure that SBV has been using to control market liquidity over the past year. While liquidity increased at times, the value of traded treasury bills declined sharply. The value of traded government bonds also declined. On the OMO (open market operations) market on June 6, SBV auctioned off 28-day SBV bills worth VND10 trillion, of which only VND5.3 trillion with an interest rate of 1.2 percent were bought by credit institutions. Also on June 6, the State Treasury auctioned off 5-30-year government bonds worth VND6.6 trillion. Only VND4.04 trillion worth of bonds, with a maturation period of 10, 15 and 20 years, was sold. Bonds with a maturation period of five, seven and 30 years found no buyer.

The lower liquidity was partially attributed to slight increases in interest rates on the interbank and government bond market. According to the SSI report, the interbank market interest rates, especially those applied to short-term credit, were more stable in the first half of May but rebounded in the second half of the month. In this regard, the overnight interest rate increased to 1.6 percent, the highest rate seen since Tet - the Lunar New Year holiday in February.

Due to the lower liquidity, the State Treasury accomplished only 29 percent or VND57.6 trillion of its 2018 government bond plan in the first five months of this year.

SSI economists said the relevant authority should keep track of the trade deficit and the withdrawal trend of foreign investor capital, and not concern itself with liquidity at this time.

In world financial markets, most major currencies have depreciated against the dollar. The euro declined 6.7 percent, while Japan’s JPY decreased 3.4 percent, and the Republic of Korea’s KRW, Indonesia’s IDR and PHP of the Philippines decreased as well. Meanwhile the Vietnam dong only experienced a slight drop vis-à-vis the dollar.

SBV Deputy Governor Nguyen Thi Hong told the media on June 11 that the bank took the initiative in regulating the central exchange rate on a flexible basis and therefore the foreign exchange market is stable despite fluctuations on world markets. SBV has bought a large amount of foreign currency to enrich its foreign reserves, while investor confidence in the Vietnamese dong has increased, and the gold market remains stable and effectively self-regulated, Hong said.