Macro Report

SBV signals to grant a higher credit disbursement limit for commercial banks. Liquidity in the banking system remained ample last week, and the SBV did not utilize any new open market operations. The week also did not see any expiration volume from SBV T-bills, nor from reverse repos. At the end of the week, both outstanding SBV T-bills and RRPs remained unchanged. Overnight interbank interest rates dropped to 0.55% p.a on Wednesday - the lowest for the week - and then ticked up to 1.12% p.a. (+18 bps) at the end of the week.

SBV cut policy rates for the fourth time within 3 months. Liquidity in the banking system remained ample last week, and the SBV did not utilize any new open market operations nor any expiration volume from SBV-bills or reverse repos. At the end of the week, both outstanding SBV-bills and RRPs remained unchanged. Interbank interest rates dropped significantly to the below 1% zone for the first time since March 2023, reflecting an ample state of liquidity. As of 16th of June, the overnight term was at 0.98% p.a. (-170 bps) and 1 wk. to 1 mo. terms ranged from 1.3% (-170 bps) to 3.1%(-90 bps).

Open market operations were muted for most of the month, with a large amount of 91-day SBV T-bills to be expired

The interbank rate moved lower, ranging between 3.9% and 5%.

The SBV cut policy rates for the third time in 2023, while deposit/lending rates trended lower to reflect the easing cycle

The VND remained largely unchanged in May and against most regional peers. Tailrisk to the VND increased, as monetary policy diverged between Vietnam and developed countries

Both the primary and secondary government bond market declined in May, in response to policy rate cut.

The STV was reluctant to issue government bonds in the primary market due to slow public investment disbursement

Overnight interbank interest rate dropped significantly. Liquidity in the banking system remained ample last week, and the SBV did not utilize any new open market operations. The amount of 91-day SBV T-bills expired was also lower on a weekly basis (VND 16.9 tn), while in terms of RRP unwind there was VND 1.35 tn worth that had expired. As such, the SBV net injected about VND 15.5 tn ($660 million) into circulation. At the end of the week, outstanding T-bills was back to zero, while RRPs was also at a mere VND 294 bn. Low credit demand and market-wide expectations for a further cut in interest rates in Vietnam led to overnight interbank interest rates moving lower, to 2.8% p.a. (-120 bps) as of the 9^th of June. 

Overnight interbank interest rate moved lower in a tight corridor. Liquidity in the banking system remained ample last week, and only VND 11 bn of 7-day and VND 704 bn of 28-day RRP (both at 4.5% p.a.) were utilized in terms of open market operations. There was again a large amount of SBV T-bills that had expired (VND 24.8 tn), while in terms of RRP there was only VND 548 bn VND worth had expired. As such, the SBV net injected about VND 25 tn ($ 1.06 bn) into circulation. Overnight interbank interest rates moved lower in a tight range (3.8% - 4.0%) for the first half of the week, and then ticked up back to 4% in the last two trading days.

The SBV lowered policy rates for the third time. Liquidity in the banking system continued to remain ample last week, and only VND 548 bn of 7-day RRP at 5% p.a were utilized in terms of open market operations. There were again a large amount of SBV T-bills that had expired (VND 49 tn), while in terms of RRP there was VND 753 bn VND worth that had expired. As such, the SBV net injected about VND 48.4 tn ($ 2.1 bn) into circulation. Overnight interbank interest rates moved in a downward trajectory, fluctuating between 4.0% and 4.5%. For this week, there will be another VND 24.8 tn of SBV T-bills set to expire to support overall liquidity.

Large amount of SBV-bills expired. Liquidity in the banking system flowed well last week, and the SBV did not utilize any new open market operations. The focus of the week was a large amount of SBV-bills expired (VND 20 tn) while there was VND 7.1 tn VND of reverse repos that had expired. As such, the SBV net injected about VND 13 tn ($ 550 mn) into circulation. Overnight interbank interest rates were rangebound between 4.5 and 5%. For this week, there will be another VND 49 tn of SBV-bills to be expired to support the overall liquidity.

Open market operations were more active towards the end of the month, due to higher cash demand for long public holiday.

The SBV injected liquidity overall in April, in both OMO activities and FX reserve accumulation.

The interbank rate was rangebound, between 4% and 5%.

Deposit rates cooled down, and market lending rates declined for creditworthy businesses.

The VND remained largely unchanged in April, while the SBV accelerated in FX reserve accumulation.

Both the primary and secondary government bond market declined in April, in response to potential policy rate cuts.

Inactive week on the open market operations. After the long public holiday, liquidity in the banking system reverted back to be more stabilized and led to an inactive week. In terms of OMO activity, a total of VND 5.81 tn ($248 mn) of 7 and 28 day short-term reverse repos was executed at the SBV’s borrowing window at 5% p.a, while there was a much larger amount of reverse repos that had expired for the week (VND 60.5 tn or $2.58 bn). Specifically, closing the week the SBV withdrew VND 54.76 tn ($2.33 bn) from banks via open market activities, helping overnight interbank interest rates to remain at a tight range, from 4.8% to 5.0%. On the other hand, the SBV purchased a slight amount of USD for FX reserves accumulation ($275 mn). Current FX reserve levels are estimated at $91 bn (+$6.2 bn YTD).

Interbank interest rates picked up, due to high cash demand. Higher cash demand towards the long public holiday led to liquidity being more taut in the banking system than the week before. Open market operations were more active, with a total of VND 25.77 tn ($1.09 bn) of 7 and 14 day reverse repos being issued at 5% p.a, in which most of the issuance was concentrated right before the holiday. As of May 5, the SBV injected VND 14.46 tn ($615 mn) via open market activities, and interbank interest rates picked up to 5.1% (+177 bps). Longer terms also ranged around 5.2% - 5.4% p.a. The VND-USD overnight rate spread remained positive.

Interbank interest rates cooled down. As expected, open market operations were less active last week, noting better liquidity. Credit demand seemingly remained stagnant so far, while the SBV still did not intend to issue any SBV bills. Comparatively, there was only a smidgen of VND 7.2 tn ($ 310 mn) this week worth of 7 and 28 day reverse repos being issued at 5%, down significantly (-90% WoW), concentrated at the beginning of the week. The SBV shifted to withdraw VND 22.3 tn, and interbank interest rates cooled down to reflect abundant liquidity. Closing the week, the overnight interbank rate slid to 3.3% p.a (-210 bps WoW).

SBV actively pumped liquidity in the system. After a few weeks of muted open market operations due to abundant liquidity and the SBV having opted not to issue SBV treasury bills during the time, activity has picked up in this channel lately to provide VND liquidity support.

Open market operations shifted between the first half and second half of the month. The overall tone at the end of the month was to focus on supporting growth.

The interbank rate fell to the lowest since July 2022, due to stagnant credit demand.

The SBV surprised the market and made a bold move to cut policy rates to support growth.

Deposit rates cooled down, and market lending rates declined for creditworthy businesses.

The VND followed regional peers with an appreciation pattern.

Both primary and secondary government bond market declined in March in response to policy rate cuts.

Interbank rate climbed back to 5%. Last week, liquidity in the system was likely less abundant as it was in March, and the overall tone was to provide VND liquidity support. Open market operations were active in the last two trading days, and there were VND 4.4 tn worth of 28-day reverse repos being issued at 5% (-50 bps vs. the last winning rate). The SBV has purchased $434 mn to bolster national FX reserves (equivalent to injecting VND 10.2 tn into the domestic economy). The overnight interbank rate climbed back to the 5% region, and closed the week at 5.2% p.a. (+410 bps), and the VND-USD spread reverted to a positive range. 

Another round of policy rate cut. Open market operations were muted last week, and liquidity in the banking system could be summed up as manageable due to low credit demand. There was no new SBV treasury bill issuance, nor reverse repo activity for the week. The overnight interbank rate closed the week at a low level of 1.23% p.a, and stayed at around 1% range for most of the week. The USD-VND spread remained in negative range, but pressure on the exchange rate was not high at the moment as we saw some inflows in terms of FDI and FII. Moreover, the 1Q23 trade balance is still estimated to run a surplus of $4.1 bn.