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SBV withdraws VND30 trillion from system

The Saigon Times

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HCMC – The State Bank of Vietnam (SBV), the central bank, has issued nearly VND30 trillion of G-bonds after a four-month hiatus.

The central bank sold VND15 trillion of 28-day G-bonds to six of 18 entities participating in the auctions held on March 11. A similar volume of G-bond was sold to seven of 14 bidders on the following day, with all having an annual coupon of 1.4%, according to the Vietnam News Agency.

The latest G-bond sale comes amidst a gradual decline in interbank interest rates in recent weeks. However, the G-bonds offered at this auction come with a much lower coupon rate than the 2.13% for the one-month term in the interbank market, indicating an excess of liquidity in the banking system.

Market watchers said that this bond issuance was aimed at reducing idle cash in the banking sytem and stabilizing the Vietnam dong-U.S. dollar exchange rate.

The resumption of G-bond sale echoes what was done in September 2023 when the exchange rate came under pressure as a result of abundant liquidity and sluggish credit growth.

Between September 21 and November 8 last year, the SBV issued a staggering VND360.3 trillion of 28-day G-bonds.

Deputy Governor of the SBV Pham Thanh Ha said that the decision to resume bond issues would help regulate short-term bonds and reducing excess liquidity in the system to minimize impact on interest rates.

He emphasized the importance of balancing interest rates and exchange rates despite stable interbank market rates.

On February 22, seasonal factors led to a spike in interbank interest rates, squeezing short-term liquidity and pushing overnight rates up to 3.7% per year. However, these rates stabilized towards the end of the month, returning to lower levels.

Since then, overnight interest rates have plummeted to 0.8% per year, down by a significant 78% from their peak. Short-term rates, including those for tenors of one month or shorter, have also experienced notable declines, now ranging between 1.07% and 2.06% per annum.

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