Central Bank Raises OMO Interest Rate for the First Time Since May 2024

The December 4th trading session witnessed a notable development in the currency market as the State Bank of Vietnam (SBV) raised the repo rate for collateralized loans (OMO) to 4.5% per annum from the 4% level maintained since September 2024.

Specifically, the SBV offered a total of VND 25 trillion across four tenors: VND 1 trillion for 7-day tenor, VND 10 trillion for 14-day tenor, and VND 7 trillion each for 28-day and 91-day tenors, all at a rate of 4.5% per annum. The auction results showed VND 17.488 trillion successfully bid, including VND 224 billion for 7-day tenor, VND 8.095 trillion for 14-day tenor, VND 4.876 trillion for 28-day tenor, and VND 4.292 trillion for 91-day tenor. Meanwhile, VND 14.277 trillion matured, and the SBV did not issue new treasury bills. Thus, the SBV net injected over VND 3.211 trillion into the market during the session, bringing the total OMO outstanding to VND 361.407 trillion.

This marks the first OMO rate hike by the regulator in 19 months. The last adjustment occurred in mid-May 2024, when the winning bid rate was increased from 4.25% to 4.5% per annum. Subsequently, the SBV reduced this rate twice in August and September 2024, to 4% per annum, maintaining it until the December 3, 2025 session.

The SBV’s OMO rate increase comes amid rising interbank rates, which have reached their highest levels since October 2022, indicating a significant increase in interbank borrowing demand. On December 3, the average overnight VND interbank rate hit 7.48% per annum, while the 1-week and 2-week rates rose to 7.49% and 7.48% per annum, respectively.

The hike in the OMO winning bid rate is seen as a reflection of the system’s liquidity status. While the regulator continues to inject liquidity regularly via OMO to offset maturing loans, the rate increase signals that credit institutions must pay higher costs to access support funds, thereby pushing VND interest rates to a new equilibrium.

Analysts suggest this move signals the SBV’s intent to ensure the market accurately assesses system liquidity, discouraging banks from over-relying on cheap funding from the regulator. The market is now watching whether this adjustment marks the start of a tighter regulatory cycle or is merely a short-term measure to stabilize year-end supply and demand.

In the short term, the OMO rate adjustment is deemed appropriate, allowing the market to operate more in line with market signals. Long-term implications suggest monetary policy may be entering a new phase of refinement—more flexible, practical, and reflective of the economy’s capital supply and demand dynamics.

With the OMO rate increase, interbank rates are likely to remain higher than in Q3, at least until seasonal cash flows return to the system.

Earlier, the money market signaled VND liquidity shortages within the banking system. This occurred during the year-end peak for banks, with credit growth expected to reach around 20% by year-end 2025. This pressured banks’ capital balancing, especially as deposit growth lagged significantly behind credit expansion.

To support banks, the SBV has maintained a net liquidity injection stance, pushing OMO outstanding to a record high of over VND 360 trillion. According to the SBV, open market operations aim to promptly and fully meet banks’ liquidity needs, enabling them to access low-cost funds and continue reducing lending rates in line with government directives.

Additionally, in mid-November, the SBV introduced 105-day OMO tenors and expanded bidding volumes for longer tenors.