Increase in liquidity through currency flows


Deposits have fallen sharply at the State Bank of Vietnam, but liquidity is still plentiful. This could be attributed to credit growth this year which picked up although still slow.

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As of October 29, growth in new loans had reached 8.72%. Although this level is surprising compared to the previous forecast and above 6.48% in the same period last year, compared to the previous years before the pandemic, this rate of credit growth remains low. During the same period in 2019, it had reached almost 10%, and during the same period in 2018, it was 10.5%.

Another reason could be that the cash flow that banks inject into the economy through credit is much less and the banks don’t have much pressure to mobilize because liquidity is not as stressful. than in the previous period. In addition to this, the State Bank of Vietnam has advanced foreign currencies. According to statistics from SSI Securities Company, in the first three weeks of November, the amount of Vietnamese dong injected into the market through the currency buying channel was over VND 60 trillion. This amount would have supported liquidity, helping the interbank interest rate to stay below 1%.

In 2020, the State Bank of Vietnam had applied this solution both to increase foreign exchange reserves and to attract more foreign currency. As a result, the State Bank has the resources to actively regulate in case the exchange rate rises sharply, instead of letting the market automatically adjust and cause huge waves.

However, in 2021, the State Bank had to stop quoting the spot exchange rate on the stock exchange and stop buying foreign currencies for a spot price. Instead, the State Bank canceled the purchase of foreign currency for six months. The move aims to allay U.S. suspicions about the manipulation of the Vietnamese currency in trade. Accordingly, commercial banks with large positive foreign currency positions that wish to transact should actively contact the State Bank of Vietnam. Cash purchases in US dollars may be made on a case-by-case basis. However, as the State Bank canceled the six-month currency purchase, the liquidity of the system showed signs of strain.

The State Bank of Vietnam changed its method of buying currencies from August 12 from a six-month term to a spot exchange, after Vietnam and the United States switched to agreement on currency manipulation. Therefore, if the lending institutions transact today, they will receive money from the State Bank of Vietnam within two days. The amount of Vietnamese dong injected into the liquidity support system quickly stabilized interbank interest rates.

Therefore, the State Bank has not reduced the operating interest rate, but commercial banks also have conditions to reduce interest rates in the last months of the year. Specifically, in addition to the 60 trillion VND pumped out in the first three weeks of November, the State Bank also pumped out nearly 120 trillion VND in August through the currency channel of previous future transactions. .

Source: Saigon Giai Phong

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