Increase foreign currency supply – Control interest rates

Increase foreign currency supply – Control interest rates

In the face of a situation where interest rates are showing signs of increasing again, as shown by some banks recently increasing deposit interest rates, as well as interest rates in the interbank market increasing sharply compared to the previous period, Increasing foreign currency supply, controlling exchange rates while keeping interest rates stable is a significant challenge for policy.

Increase foreign currency supply

In the first 2 days of this week (April 22 – 23), the State Bank (SBV) sold nearly 350 million US dollars (USD) to increase the supply of foreign currency to the market. This number is quite modest compared to the existing foreign exchange reserves, estimated at about 92-93 billion USD by the end of 2023. Therefore, it is likely that the operator will continue to sell foreign currency to intervene to cool down the exchange rate. USD price/VND in the near future.

The market has responded positively, especially in the informal market. Specifically, although the USD/VND central exchange rate and transaction prices at banks on April 24 did not decrease much compared to the previous day, USD price right on April 23, it dropped sharply by 250 VND on the buying side and 170 VND on the selling side, thereby narrowing the increase compared to the beginning of the year to 3.2% – 3.7%, respectively, down to 25,520 – 25,700.

Thus, along with the increased amount of foreign currency from trade and investment activities, the operator itself is also proactively increasing supply to the market. Statistics show that in the first quarter of this year, Vietnam had a trade surplus of nearly 8.1% of goods billion USD; Realized FDI capital in Vietnam is estimated at 4.63 billion USDnot to mention the peak flow of remittances in the first months of the year and the amount of foreign currency from international tourists recovering strongly.

Along with the policy of increasing supply USD, the State Bank also organized a gold bar auction. After failing in the first session of the week due to not enough businesses registering to bid, the next session on April 23 had 2 winning members out of 11 participating members, with a volume of 3,400 taels of gold at a price around 81.3 million VND/tael. Because the winning bid volume was much lower than the SBV bidding volume of 16,800 taels, this agency continued to organize bidding in the following sessions.

The State Bank’s increase in the supply of gold bars to the market aims to stabilize prices, limit the difference between the converted world gold price and the domestic gold price to continue to widen, or even narrow. Each tael of gold SJC pieces in the country is currently 12-13 million VND higher than the converted world gold price, although down from the previous level of 18-20 million VND but still very high. Meanwhile, at the April 24 morning price management steering committee meeting, Deputy Prime Minister Le Minh Khai asked the State Bank to ensure supply and demand and reasonable gold prices, in the face of unpredictable developments and high differences compared to the world.

Notably, the move to increase the supply of gold bars to the market can also contribute to cooling down the exchange rate. Analysts say that the high difference in domestic gold prices with the world’s is one of the factors putting pressure on the exchange rate. USD price/VND in recent times, when traders have sought to collect USD on the market to smuggle gold to make up the difference. Therefore, if gold supply expands from SBV auctions, the narrowing gap will also reduce demand. USD to smuggle gold.

Stable liquidity

However, selling foreign currency to the market also means a corresponding amount of VND is withdrawn. According to the listed selling price at the SBV Exchange, it is 25,450 VND 1 USD350 million dollars sold, equivalent to more than 8,900 billion VND withdrawn from the system. In the gold market, 3,400 taels were sold at a price of 81.3 million VND/tael, equivalent to more than 276.4 billion VND withdrawn.

The important thing is that these policies may not stop. Suppose if this intervention, the State Bank sells about 5 billion USD Also at the price of 25,450 VND, more than 127 trillion VND will be withdrawn. Similarly, if the next gold bar auctions are held successfully, stopping at only 20,000 taels of gold, there will be more than 1.6 trillion VND withdrawn. This number is quite modest, but the important thing is that no one knows what the level of intervention in the gold bar market will be.

In the context that the total means of payment in the first months of the year often increase low, partly reflected in the capital mobilization growth of the whole industry as of March 25, which decreased by 0.76% compared to the beginning of the year, if in the coming time a certain amount Large VND withdrawals may also put pressure on system liquidity and possibly interest rates.

Therefore, recently, the State Bank of Vietnam has actively supported more system liquidity through net injections on the open market (OMO), at the same time, the amount of new T-bills issued is much lower than the amount. The bills are gradually maturing. It is worth noting that since the beginning of this week, the State Bank has also continuously purchased papers with a 14-day term instead of the previous 7 days, with the longer term supporting more stable liquidity.

On April 23, the operator bought 14-day bills with a value of up to 36 trillion VND, while only issuing an additional 2.15 trillion VND of 28-day bills. With the amount of treasury bills issued in March that mature and the amount of valuable papers that the State Bank bought for 7-day term last week, on April 23, this agency injected a net of 25.55 trillion VND.

Next, on April 24, the State Bank only issued 1.4 trillion VND of 28-day T-bills, while purchasing 14-day bills with a value of more than 25 trillion VND. Along with the maturity amount, on April 24, a net injection of nearly 26.7 trillion VND continued. Thus, in just two days, April 23 – 24, the State Bank of Vietnam net injected nearly 52.3 trillion VND in VND. From the beginning of April to April 24, more than 175 trillion VND was pumped into the system.

In the face of a situation where interest rates are showing signs of increasing again, as shown by some banks recently increasing deposit interest rates, as well as interest rates in the interbank market increasing sharply compared to the previous period, Increasing foreign currency supply, controlling exchange rates while keeping interest rates stable is a significant challenge for policy. To do this, it is clear that the operator is actively using the open market as a channel to pump and absorb capital from time to time, to support liquidity for organizations experiencing local stress.

Phan Thuy

FILI