Vietnam central bank gets aggressive with excess liquidity

The State Bank of Vietnam (SBV) has been persistent in withdrawing excess cash from the system with the aiming of keeping the USD/VND rate stable without tapping its forex reserves.

The SBV raised VND20 trillion ($816.4 million) from selling 28-day treasury bills Thursday, double the amount a day earlier. The annualized winning rate jumped to 0.9% from 0.68%.

This was the largest T-bill issuance since the start of this month, SBV data showed.

Meanwhile, the interest rate on overnight loans, which account for the lion’s share in the interbank market, dropped Wednesday to 0.37% from Tuesday’s 0.66% and Monday’s 0.95%. Rates on loans of other terms also fell.

As the USD-denominated interest rates remain elevated worldwide, a drop in VND-denominated rates widens the spread with the USD-denominated ones, which in turn causes upward pressure on the USD/VND exchange rate, or further VND devaluation.

Selling prices of the U.S. dollar at commercial banks in Vietnam have crossed the VND24,600 threshold again in recent days.

Vietcombank, the largest forex trader in the country, quoted the greenback at VND24,260-24,630 for bids and asks late Friday morning, up VND20 on both sides from Thursday’s close.

With the U.S. Federal Reserve (Fed) hinting at continuing its tightening cycle, the SBV restarted selling T-bills on September 21 after a six-month hiatus. The Vietnamese central bank has withdrawn a combined VND185.7 trillion (nearly $7.6 billion) from the banking system in 16 consecutive days since, much higher than figures estimated by local financial analysts.

The SBV’s aggressiveness aims to regulate liquidity balance in the short term, lifting interest rate levels in the interbank market, narrowing the USD- and VND-denominated rate spread, and eventually safeguarding the Vietnamese dong, several analysts have said.

Such aggressiveness does not mean a reversal in the SBV’s accommodative monetary policy, they've added.