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The latest data released by the State Bank of Vietnam (SBV) shows that the average VND interbank overnight interest rate (the main term, accounting for about 90% of the transaction value) in the session on February 20 increased to 2.15% from 1.41% in the previous session.
This is the second consecutive strong increase in interbank overnight interest rates. Compared to the level recorded at the end of the previous week, the interbank overnight interest rates have doubled and are approaching the highest level during the peak period of the Lunar New Year payment season (2.38% recorded on February 7).
Along with the overnight term, interest rates at other key terms also increased significantly: the 1-week term increased from 1.27% to 2.24%; the 2-week term increased from 1.39% to 1.94%; the 1-month term increased from 1.85% to 2.26%.
The increase in interbank interest rates is accompanied by the high transaction volume, indicating the ongoing borrowing and lending needs among banks despite the peak period of the Lunar New Year payment season having passed.
In another aspect, in the trading session yesterday (February 21), the State Bank of Vietnam continued to record net liquidity injection activities through Open Market Operations (OMO) channel for lending against valuable papers (OMO). Specifically, 1 market participant “borrowed urgently” more than VND 946 trillion from the State Bank with a 7-day term and an interest rate of 4%.
This is the second consecutive session in which the banking system needs support from the State Bank of Vietnam. Earlier, one market participant was also injected with support from the State Bank of Vietnam with a 7-day term and an interest rate of 4%/year.
Throughout the second half of 2023, there were no new OMO lending transactions, although the State Bank of Vietnam continued to conduct open tenders to support liquidity for banks in need. This appears in the context of abundant system liquidity, reflected in the CITAD balance (deposits of credit institutions placed at the State Bank of Vietnam) reaching over VND 300 trillion and interbank interest rates dropping to historically low levels. Even in the third quarter of 2023, the State Bank had to restart the bond channel to absorb system liquidity to reduce pressure on the exchange rate.
However, after a sharp credit growth in December 2023, interbank interest rates tend to increase again, especially in the period before and after the Lunar New Year.
The increase in interbank interest rates together with the borrowing and lending needs through the OMO channel that reappeared after several months of being “frozen” indicates that the system liquidity is no longer excessive as in the second half of 2023.
On the other hand, the sharp increase in overnight interbank interest rates also contributes to reducing pressure on the exchange rate – which has been under significant pressure in the context of the strong recovery of the greenback in the international market and the high VND – USD interest rate spread.
According to Vietcombank’s observations, the bank with the largest foreign currency trading volume in the system, the USD exchange rate is currently bought – sold at the levels of VND 24,330 – 24,700 USD, an increase of 130 dong in both trading directions compared to the level recorded before the Lunar New Year.
In its newly published macroeconomic report, VCBS noted that the interest rate landscape continues to break through the bottom range, putting constant pressure on the exchange rate as the DXY remains at high levels. Accordingly, the possibility of the VND depreciation still exists, and the exchange rate movement will depend heavily on the supply of foreign currency at each point in time, with factors that have an impact belonging to the direct and indirect investment capital flows, remittances, etc.
