Interbank interest rates leap
HCMC – Interest rates for Vietnam dong loans on the interbank market have surged over the past two days, the first strong market movement since the Lunar New Year holiday (Tet) which ended in early February.
Interest rates for all tenors inched up by 30-70 basis points from less than 4% over the weekend. Annual rates of overnight, one-week and two-week loans each on February 21 rose to 5.1% while three-week and one-month rates upped to 5%.
Banks said despite a fall their liquidity remained stable and increasing interest rates were not cause for concern as credit institutions withdrew large amounts of Vietnam dong from open market operations (OMO) and other channels before Tet to ensure liquidity, settle payments including for treasury bills that fell due at the year-end, and meet requirements for their February compulsory reserves.
Banks said they expected interest rates for overnight-to-two-week tenors would drop next week as a large volume of treasury bills lent by the State Bank of Vietnam (SBV) become mature this week.
On Monday, the SBV injected VND11 trillion (around US$482 million) worth of seven-day loans with an annual interest rate of 5% into the mortgage market to support liquidity, and the amount was quickly snapped up by credit institutions. The day also saw over VND18 trillion loans on the market and VND3.5 trillion of treasury bills falling due.
The SBV net withdrew more than VND3.96 trillion from the two channels, leading money on the mortgage market to slide to VND53.6 trillion. Treasury bills in circulation fell to VND46.4 trillion as the agency did not sell any more treasury bills.
Treasury bills which become mature this week are estimated at VND49.9 trillion.
Rising interest rates on the interbank market have helped stabilize the exchange rate between the U.S. dollar and Vietnam dong over the past few days after a strong increase last week.
The dollar-dong exchange rate rose from VND22,810 on Monday to VND22,815-22,820 on February 21 while the reference rate was VND22,231. After a period of stability the greenback shot up to VND22,815 last week when a trade deficit of US$2.4 billion was reported for the first half of February.
Banks are still keeping a close eye on the foreign exchange market as demand for the dollar is still high. Banks are expected to sell dollars at VND22,750 to VND22,850 this week.
Lending rates for the U.S. dollar on the interbank market have edged up for tenors of more than two weeks. The rates for overnight, one-week, two-week, one-month and three-month loans stand at 1.1%, 1.25%, 1.4%, 1.6%, and 1.88% respectively.
The movements of interbank interest and exchange rates have weighed on bond coupons, and financial organizations have not bought all the bonds put up for sale.
Liquidity of the primary bond market has fallen but remained ample. Yields have slid slightly for Government bonds of five years or shorter but gained a slight increase for seven-year G-bonds. Coupons of 15-year bonds have remained unchanged.
The volume of G-bonds bought by foreign investors has not changed significantly.
The world gold price gained further on February 21 due to uncertainty in Europe, rising to US$1,238 per ounce. On the domestic market, a tael of gold hovered around VND36.98 million for selling and VND36.71 for buying, which was VND2.7 million higher than the global level.