The Forex Market in July: Rates Rise Despite SBV Injecting Hundreds of Thousands of Billions

In its latest monetary market update, MBS Securities (MBS) reported that in July, the State Bank of Vietnam (SBV) flexibly utilized both the OMO channel and the issuance of bills to help stabilize system liquidity.

According to MBS data, the amount of money injected through the OMO channel this month increased fourfold compared to the previous month. As of July 25, the net money supply to the system was estimated at VND 392.5 trillion with a term of 7 days and an interest rate of 4.5%, including VND 236.1 thousand billion of matured bills.

At the same time, in July, the SBV also maintained the issuance of bills with a total value of about VND 148.1 trillion with a term of 14 days and an interest rate of 4.5%. MBS estimates that about VND 33.6 trillion of bills will continue to mature in August.

Despite the SBV’s intervention efforts, the overnight interest rate remained high at 4.7%, while interest rates for terms ranging from 1 week to 1 month fluctuated between 4.7% – 4.8% at the end of July. Specifically, the interbank market interest rate remained above the 4% threshold for all terms in the month. On July 9, the overnight rate surged to 4.9% – the highest since the end of May – signaling a liquidity shortage in the system following the SBV’s strong net withdrawal actions in the past two months. In addition, credit growth as of June 30 had reached 6%, also impacting the upward trend of interbank interest rates.

In the 1st market, as of July 25, a total of 16 banks (including 4 large banks: MB, VPBank, Sacombank, and BIDV) had adjusted deposit interest rates, with increases ranging from 0.1% – 0.7%, and interest rates at some banks even exceeded the 6%/year threshold, while credit growth was increasing threefold compared to the growth rate of capital mobilization.

“This has prompted banks to aggressively increase deposit interest rates to enhance the competitiveness of savings channels compared to other investment channels in the market,” MBS said.

The analysis group believes that input interest rates will continue to increase in the second half of 2024 as credit demand is expected to continue its upward trend more strongly from mid-2024 when production and investment accelerate further in the last months of the year.

“We forecast that the 12-month deposit interest rate of large commercial banks may increase by another 0.5 percentage points, returning to the range of 5.2-5.5%/year by the end of 2024,” the MBS report wrote.

However, MBS assessed that output interest rates would remain at the current level as management agencies and commercial banks are making efforts to support businesses in accessing capital.