Vietnam central bank 'wise' to use T-bills to stabilize exchange rate

The State Bank of Vietnam’s (SBV) intervention to stabilize the exchange rate via treasury bills (T-bills) is a careful calculation and a wise solution, according to MayBank Securities.

During September 21-22, the central bank withdrew nearly VND20 trillion ($820 million) through the T-bill channel, with respective interest rates of 0.69% and 0.5%.

The Vietnamese brokerage believes that the SBV’s money withdrawal from the system is a measure to ease exchange rate pressure, bringing it to the target of +/-3% set for this year. In August and September, the exchange rate increased rapidly and showed signs of exceeding the target.

For exchange rate intervention, the central bank will implement a number of solutions to regulate money supply, including withdrawing/injecting Vietnam dong; selling/buying U.S. dollars from/for foreign exchange reserves; and increasing policy interest rates.

Currently, the SBV is withdrawing Vietnam dong through selling T-bills. According to Maybank Securities, this is a careful calculation given the system's excess liquidity and a wise step as it does not need to sell foreign currencies like last year.

In 2022, the central bank sold $25 billion from foreign exchange reserves, running out of foreign currencies early as a result, which in turn reduced its ability to intervene in the market flexibly later.

At the same time, low interest rate winning bids for the bills show that liquidity in the banking system is abundant due to slow credit growth.

In the year to September 15, the credit growth rate had reached only 5.56%, up slightly from the 5.33% hike by the end of August, while the annual target is 14%.

The analysts at MayBank Securities believe that the SBV is carefully calculating the volume of money to withdraw through T-bills in order to achieve the goals of increasing interest rates in the interbank market, thereby easing pressures on exchange rates; not disrupting liquidity for the entire economy; and bringing down lending rates.

Earlier, many experts had said that cash withdrawal was a normal measure taken by the central bank when the banking system showed excess liquidity.

Dr. Can Van Luc, chief economist at state-controlled bank BIDV, said that amid the system’s abundant liquidity, the SBV withdraws money to partially keep interbank interest rates at more appropriate levels, indirectly supporting the stabilization of exchange rates.

The central bank’s money withdrawal mainly aims to remove difficulties for some commercial banks with a surplus of working capital that was mobilized at relatively high interest rates, said Dr. Le Xuan Nghia, a member of the National Financial and Monetary Policy Advisory Council.