On April 2, SBV stopped issuing bills. At the same time, it pumped into the market VND5.952 trillion via OMO (open market operations).

The capital maturity time is seven days and the interest rate is high, at 4 percent per annum.

Analysts commented that this is an unexpected move, if noting that the banking system has always been in a state of liquidity abundance before, while credit grows slowly and banks find it difficult to find borrowers, which forces them to slash deposit interest rates to 1.7-4 percent per annum.

In the last 16 trading sessions, SBV withdrew VND171.7 trillion worth of capital through treasury bill issuance. The bills had a maturity time of 28 days and interest rates were low, just 1.4 percent per annum.

In the interbank market, overnight interest rates had soared, from 0.2-0.4 percent per annum to nearly 3.5 percent by the end of March and early April.

The central move of temporarily stopping treasury bill issuance and shifting to pumping money via OMO to improve liquidity was taken when some commercial banks begun raising deposit interest rates after a long period of curbing deposit interest rates at 1.7-1.9 percent from late 2023 to early 2024.

In the last week of March, some banks began raising deposit interest rates again to 2.4-2.7 percent per annum for 1-6-month deposits, and to 4.5-5.5 percent per annum for one-year deposit. Meanwhile, in the first three sessions in early April, some banks quoted sky high interest rates of 9.5 percent per annum.

The domestic and international financial markets have been fluctuating heavily and unpredictably. The dong/dollar exchange rate surpassed the VND25,000 per dollar threshold in early April. On April 3, Vietcombank sold dollars at VND26,080 per dollar.

The international gold prices have set new records. Prompt delivery gold price exceeded $2,200 per ounce on April 1, and then hit the new record of $2,285 per ounce on April 3, Hanoi time.

The domestic prices have also been escalating. On April 3, SJC bullion gold was traded at VND81.6 million per tael (selling price), just a little lower than the record high of VND82.8 million per tael on March 12.

SBV still has not applied any specific measure to stabilize the gold market as slated for the end of March, despite many proposals and the government’s urging.

Meanwhile, the crypto market is seething. Bitcoin hit a new record high of $73,500/BTC in mid-March and it is standing high at $66,230/BTC.

The question is why SBV has decided to reverse monetary policy. Is this just a temporary move, or will this be a tendency and will it occur in the whole banking system? What will the exchange rate be like in the immediate time?

What will happen?

According to Huynh Minh Tuan, the founder of FIDT, an investment consultancy and property management firm, the move by the central bank of pumping VND6 trillion to circulation has raised worries among securities investors.

The move was taken when interbank interest rates increased sharply early this week, hitting the 4-5 percent per annum peak for short-term loans (less than 3 months). Overnight interest rate climbed to 5 percent per annum, the highest peak since the third quarter 2023. This shows that interbank liquidity has been tightened suddenly.

In fact, cash withdrawal via short-term treasury bill issuance recently (VND170 trillion), plus the considerable credit recovery at the end of the first quarter (VND130 trillion was disbursed within the last 10 days of the quarter) both have affected the liquidity.

However, the positive thing, according to Tuan, is the flexible injection and withdrawal of money, which can lessen the impact on the banking system.

The expert said liquidity which is being tightened may cause short-term liquidity risk for financial assets, such as securities, shadow assets, or gold as what happened in September and October 2023. The trading sessions in the stock market recently also shown instability.

The ‘bright spot’ in the stock market can be seen in strong individual investment caused by low deposit interest rates.

As for exchange rates, the dollar price has surged to VND25,000 per dollar, but this was foreseeable. Dollar appreciation is being controlled well.

Manh Ha