Headquarters of the State Bank of Vietnam (SBV) in Hanoi. (Source: sbv.gov.vn) In a recent report, Viet Dragon Securities Company (VDSC)’sanalysts said that although the possibility of the US Federal Reserve (Fed)implementing another interest rate hike is still open, given that the US corepersonal consumption expenditure (PCE) index in August cooled to 3.9%, theFed’s decision to maintain the high interest rate for the next two years isunfavourable information for the SBV’s exchange rate management, especiallywhen there is a contrast in monetary policy between the SBV and the Fed.
After the Fed's recent meeting, the SBV resumed bill issuance. As a result, theaccumulated net withdrawal value through bill issuance as of October 3, 2023reached nearly 111 trillion VND (4.55 billion USD). Overnight interbank interestrates and T-bill interest rates have begun to increase to 0.55% and 1.18%,respectively, according to the SBV’s latest data.
VDSC’s analysts believe that this development, along with theexpectation of accelerated credit growth at the end of the year, may helpnarrow the interest rate gap between the Vietnamese dong-denominatedand the US dollar-denominated savings. With the exchange rate having increasedby 3.5% since the beginning of the year, the analysts do not expect interestrate arbitrage activities to create additional pressure on the exchange rate.
However, they noted, in the most negative scenario where the USdollar index (DXY) increases beyond 110, the SBV may have to intervene byselling the dollar, combined with a net withdrawal on the T-bill channel. Thiscould worsen investment sentiment due to concerns about deeper changes in theSBV’s monetary policy management.
The analysts believe that the SBV's issuance of bills is not asignal of policy reversal when economic growth is still low at 4.24% in thefirst eight months of 2023 and inflation remains under control.
However, they noted, the room for further loosening of monetarypolicy is relatively limited, and this is not positive news for the stockmarket in the year-end period.
In a recent report, Saigon Securities Company (SSI)’s researchdivision also stated that the SBV's move to issue bills is a way to adjust theshort-term liquidity situation in the banking system. The bill issuance is alsoa common activity from central banks and doesn't signify a change in the SBV’smonetary policy. The SBV’s purpose is merely to withdraw liquidity in theinterbank market to reduce pressure on exchange rate speculation in the shortterm.
In fact, the sentiment of investors in the stock market hasquickly changed, reflected in the sharp decline in market liquidity.Specifically, cash flow in the industry groups, including real estate,securities, and public investment, which led investors’ sentiment in the pastperiod, has shown clear signs of weakening.
This movement further reinforces VDSC’s view that the market'sbroad upward trend, based on policy effects since May, will graduallytransition to a more sideways trend, as mentioned in the VDSC report./.
VNA
