State Bank absorbs 90,000 billion VND through credit bill channel

The State has absorbed 90,000 billion VND of uncirculated money after 6 consecutive sessions of bidding for treasury bills.

On September 28, the State Bank withdrew nearly VND20,000 billion through treasury bill bidding. This was the sixth consecutive session that the regulator offered treasury bills, raising the amount withdrawn from the interbank market to VND90,000 billion.

The treasury bills issued in these rounds all have a term of 28 days and are offered for sale through the interest rate bidding method. Accordingly, information about this type of valuable paper is sent to banks through the State Bank Transaction Office to register for bidding. The winning bank will pay the State Bank to buy the treasury bill and, at the end of the treasury bill term, will be "paid principal and interest" similar to savings deposits. The amount of money withdrawn through the treasury bill channel will be pumped back into the interbank market after 28 days from the date of issuance.

The pumping and withdrawing of money through the treasury bill channel is a normal operation of the State Bank that affects the amount of money in the interbank market (where banks lend to each other), not circulating in the residential market. The last time the operator withdrew money through the treasury bill channel was in February this year with a total withdrawal scale of nearly 400,000 billion VND in one month.

After the treasury bill auction, the interbank interest rate level has not changed significantly. The VND overnight interest rate remains low (0.16%), thereby the difference between VND and USD interest rates is almost unchanged compared to before the State Bank called for treasury bill auctions. This, according to experts, may indicate that liquidity in the interbank market is very abundant.

Mr. Nguyen Khanh, an expert with many years of experience in the foreign exchange sector at banks, assessed that withdrawing money through treasury bills would cause a large amount of uncirculated money to flow from the commercial banking system to the State Bank, without negatively affecting the liquidity ratio of the commercial banking system or market liquidity. This withdrawal of money would not affect general liquidity or foreign currency supply and demand, but would only indirectly affect the exchange rate.

According to experts, withdrawing money through the treasury bill channel can reduce the impact of interest rate trading activities, also known as "carry trade" when the VND - USD interest rate gap remains high at 4-5 percentage points.

If the State Bank continuously conducts treasury bill auctions until it has absorbed all the excess money in circulation, the regulator will re-control the interbank interest rate. The treasury bill interest rate will become the lowest interest rate in the market and can be used as an indirect tool to influence the exchange rate. Thereby, the regulator can more easily regulate the market when there are strong fluctuations without causing shocks to the currency market, Mr. Khanh analyzed.

However, Mr. Khanh also noted that this tool can only indirectly affect the exchange rate when all the excess money is absorbed. A more effective measure is to intervene through buying and selling activities (supply - demand) in the market.

In addition to the unpredictable factor of the USD Index, credit growth combined with import orders forecast to increase again in the last months of the year, according to Mr. Khanh, could cause the exchange rate to suffer more disadvantages. Therefore, this expert believes that the State Bank may still have to sell USD in the remaining months of 2023.

According to Rong Viet Securities Company (VDSC), the exchange rate is retesting the 24,500 VND per USD zone and may decrease again by the end of 2023. In case the USD Index increases sharply to 110 points, this securities company believes that the operator may have to intervene by selling foreign currency and keep the exchange rate at this level until the end of the year.

Quynh Trang

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