Central bank supports liquidity for banking system

The move shows the central bank's support for liquidity in the banking system with an aim to establish a lower interbank interest rate level in the near future.

This marks the second time the SBV has reduced the OMO interest rate in more than a month. On August 5, the SBV reduced the interest rate from 4.5% to 4.25% per year.

The rate cut has reversed the trend of interest rate increases in the first half of 2024, when the SBV had adjusted the rate up twice in mid-April and May 2024, from 4% to 4.25% and then from 4.25% to 4.5%.

Aside from supporting the liquidity of the banking system, the SBV's move is also likely to help mitigate issues as the foreign exchange rate has been plummeting in recent weeks.

In the interbank market, the USD/VND exchange rate last weekend fell to VND24,543 per dollar, down VND47 compared to the previous week. Compared to the end of July, the interbank foreign exchange rate is currently down by about 2.8%.

Meanwhile, the USD/VND exchange rate listed at domestic banks has also decreased. As of the end of last week, the dollar was being sold at banks for up to VND24,750 per dollar, while the buying price was up to VND24,400 per dollar. The depreciation of the dong against the dollar since the beginning of the year has narrowed to 1.3% from the peak of 4.3% recorded in June and July.

In the unofficial market, the dollar price has fallen to below VND25,000 per dollar for both selling and buying. Compared to the peak of nearly VND26,000 per dollar at the end of June, the dollar price in the unofficial market is currently decreasing by 3.8%.

Due to the cooling exchange rate, the SBV has been loosening monetary policies, including allowing banks with high credit growth to increase their credit cap, stopping the issue of treasury bills and reducing the OMO interest rate.

Analysts believe that the SBV might also increase the dollar buying price at its Central Banking Department (CBD) to supplement the country’s foreign exchange reserves like it did at the end of 2022. In the second quarter and early third quarter of this year, the SBV had to sell about US$6 billion, equivalent to the amount of dollars purchased during all of 2023, to deal with rising exchange rate pressure.

Nguyen Thi My Lien, head of the Phu Hung Securities Company’s analysis division, said the market is expecting the SBV to buy the dollar, which will help increase the liquidity and supply of the dong to the market.

Lien also predicted that the SBV will keep interest rates stable, especially in the context of serious damage caused by typhoon Yagi.