In a recent money market report, SSI Securities Joint Stock Company indicated that liquidity in the banking system continued to be stable and operations on the open market channel were not very active.

Specifically, although the State Bank of Vietnam (SBV) regularly offers bids on the buying channel for two terms of 7 days and 28 days, each term with VND 50,000 billion with an interest rate of 4.5% for the first 4 sessions of week and dropped to 4% for the last session of the week, however there was no winning volume. In the past week, no maturity volume was recorded on both T-bill and forward buying channels.

Abundant liquidity caused interbank interest rates to continue their downward trend, reaching 0.98% for overnight terms (decreased by 1.7 percentage points) and 1.3 - 3.1% for terms of less than 1 month, decreased by 0.9 - 1.7 percentage points from the previous week.

Besides, the State Bank continued to reduce the operating interest rate for the 4th time this year, with a decrease of 0.5 percentage points at some key interest rates such as refinancing rate, interest rate on OMO channel and 0.25 percentage points for the ceiling deposit rate under 6 months.

Thus, most of the operating interest rates have decreased to the equivalent of the period of 2020, during the time when the SBV implemented the loosening monetary policy to support COVID-19.

According to SSI, although this is a rather proactive move of the State Bank in the context of economic difficulties, it is also a signal that the market interest rate needs to be adjusted further from the current level to be able to return to the appropriate range. However, reducing the policy interest rate is not a sufficient condition at the moment, but improving output for businesses as well as the actual implementation of solutions from the Government will have more impact on lending interest rates in the market.

In addition, the pressure on the exchange rate also needs to be considered when the interest rate implementation roadmap of the US Federal Reserve (Fed) is still unclear or the pressure on inflation when core inflation is still high.

In the foreign exchange market, the exchange rate rebounded when the SBV made a move to reduce the policy interest rate, the monetary policy trend was quite different from that of other major central banks (except China and Japan).

At the end of the week, the exchange rate on the interbank market increased by 0.23% to VND 23,535. Listed rates at commercial banks and free exchange rates have also been adjusted by VND 50/USD. SSI maintains the view that pressure will gradually increase on the dong in the upcoming period if the Fed continues to raise interest rates and seasonal pressure comes from FDI enterprises' profit repatriation.

Kylie Nguyen