Central bank ceases bill issue amid increasing interbank interest rates

The headquarters of the State Bank of Vietnam (SBV). (Photo: sbv.gov.vn)

The State Bank of Vietnam (SBV) has ceased bill issue after nearly two months of using the channel to withdraw cash out of the banking system.

On November 9, 20 trillion VND (820.2 million) of bills came to maturity, but the SBV did not issue new bills for the first time after seven consecutive weeks of using the channel. It meant a corresponding amount of money was pumped back into the banking system.

On the day, though the SBV continued to offer to buy valuable papers with a seven-day term, no banks participated in the auction.

Previously, in the context of a liquidity surplus in the banking system and the lowest interest rate in the interbank market since the beginning of 2021, the SBV reopened the bill channel to withdraw cash out of the banking system on September 21 after more than six months of ceasing the channel.

According to analysts, the SBV's bill issue move was aimed to adjust liquidity in the banking system in the short term, which is expected to push up Vietnamese dong-denominated interest rates in the interbank market with an aim to reduce the interest rate gap between the US dollar and the dong to indirectly support the foreign exchange rate.

The SBV’s statistics showed from September 21 to November 8, 2023, the SBV issued a total of nearly 360.35 trillion VND in bills, with a term of 28 days. By November 9, 2023, bills worth 185.69 trillion VND came to maturity so the cash returned to the banking system. Bills worth 174.65 trillion VND are under circulation and will mature in the near future.

The SBV ceased bill issue in the context that interbank interest rates have rebounded from the lowest level.

According to the SBV’s data, the average overnight interbank interest rate of dong-denominated deposits on November 8 was 0.83% per year, a sharp increase compared to the 0.14% interest rate applied on September 21 when the SBV reopened the bill issue channel to withdraw cash out of the banking system. The interest rates for one-, two- weeks, and one month also increased by 0.3-1 percentage point.

In addition to the increasing trend of interbank interest rates, the US Federal Reserve (Fed)'s decision to keep interest rates unchanged in the last November meeting caused the value of the greenback in the international market to reverse and decrease sharply, which helped reduce pressure on the domestic foreign exchange rate.

In fact, the USD/VND exchange rate has also decreased continuously in recent days. On November 9, 2023, the greenback selling price at Vietcombank - the bank with the largest foreign currency transaction scale in the banking system - was listed at 24,250 VND per dollar, down 0.9% against the previous week./.