State Bank switches to net injection

Issuance of treasury bills has decreased to below 1,000 billion VND per session since the beginning of this week. If including the maturity amount, the State Bank has switched to net injection status.

This figure of 1,000 billion is significantly lower than the scale of attraction of 10,000-20,000 billion VND per session in the period of late September - early October.

The winning volume has been on a continuous downward trend and conversely, the winning interest rate has been on the rise. From October 19th to now, the winning interest rate of the treasury bills has remained at 1.45% per year, compared to the winning interest rate of the first offering which was 0.69%.

Accordingly, along with the maturity of issuances from the end of September, each session currently has thousands of billions of dong pumped back into the banking system.

The move to reduce net withdrawals comes as the average interbank interest rate for VND is rising sharply again. According to the latest update from the State Bank on October 23, the overnight interbank interest rate has increased to 2.22% from 1.47% recorded on October 20. This is the highest level since mid-June and many times higher than the bottom recorded at the end of September.

The increase in VND interest rates in the interbank market helps narrow the gap with USD interest rates, reducing pressure on the exchange rate.

The act of pumping and withdrawing money through the treasury bill channel is a normal operation of the State Bank that affects the amount of money in the interbank market (where banks lend to each other), not circulating in the residential market.

"The decrease in winning bids on the treasury bill channel is more likely due to banks' ability to prepare for capital sources at the end of the year, rather than due to tight liquidity in the system," SSI Research's report wrote. Credit growth as of October 11 reached 6.2% compared to the end of 2022 - down from 6.9% at the end of September and much lower than in 2022 (11.2%).

The USD/VND exchange rate is approaching its peak at the end of last year, although foreign currencies are not under much pressure, and fluctuations in the free market also show that the demand for USD from domestic individuals has not changed dramatically.

According to SSI Research, the foreign currency situation in the system is not too unfavorable, and the selling rate on the State Bank Exchange listed at 25,244 VND shows that the regulatory agency will not yet seek foreign exchange reserves to stabilize the market. The exchange rate is currently up 3.8% compared to the end of 2022, within the allowable fluctuation range.

The treasury bills issued in these rounds all have a term of 28 days, and are offered for sale through the interest rate bidding method. Accordingly, information about this type of valuable paper is sent to banks through the State Bank Transaction Office to register for bidding. The winning bank will pay the State Bank to buy the treasury bill and, at the end of the treasury bill term, will be "paid principal and interest" similar to savings deposits. The amount of money withdrawn through the treasury bill channel will be pumped back into the interbank market after 28 days from the date of issuance.

Minh Son

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