UOB: State Bank will continue to flexibly use interest rates

Mr. Dinh Duc Quang, Director of Currency Trading Division, UOB Vietnam Bank, forecasts that the operating interest rate will continue to flexibly use commercial intervention interest rates (interest rate on treasury bills, open market interest rate OMO) to maintain the short-term mobilization level of 3 months around 3-4% and long-term of 12 months at 5-6%.

In early November 2024, the market recorded an increase in interbank VND interest rates compared to the relatively low average trading level in October; At the same time, the USD/VND exchange rate in the past few weeks has increased again, almost reaching its highest level in the middle of this year.

The head of currency trading at the Singapore bank said that this development is similar to the recent strong fluctuations in the global foreign exchange and currency markets due to the impact of major events such as the conflicts in Ukraine and the Middle East, which have not shown any signs of cooling down. Along with that, the difference in economic growth rates between major economies has led to a trend of investors shifting and diversifying their asset and investment risks.

The USD lost value in September after the US Federal Reserve (Fed) cut interest rates by a whopping 50 basis points, but in October, the greenback almost regained all the lost value after solid economic data was released (economic growth, solid new jobs and falling inflation).

In that context, Mr. Quang said that the State Bank of Vietnam has intervened to stabilize the markets. When the USD/VND exchange rate increased sharply, the management agency issued treasury bills to absorb excess liquidity from the market to reduce exchange rate pressure. Foreign exchange transaction data in the past few months showed that there was a relatively large demand for foreign currency from the State Treasury, along with the Treasury reducing the amount of VND deposits in the commercial banking system. When the market needed more VND liquidity, the management agency pumped support through the open market channel.

Referring to statistics (as of the end of November 4), the balance of issued treasury bills was about 80,000 billion (absorption channel) while the balance of liquidity injection through the open market was 50,000 billion (injection channel). According to Mr. Quang, the management agency has been using market stabilization tools in harmony and shows that there is no shortage of liquidity in the market. The interest rates for mobilizing deposits from individuals and businesses at commercial banks were kept stable in October and early November, also confirming that the market has no signs of liquidity shortage.

UOB forecasts that the SBV will not adjust the operating interest rates (refinancing interest rates, rediscount interest rates, and deposit interest rate ceilings) and will continue to flexibly use commercial intervention interest rates (interest rates on treasury bills, open market operations (OMO) interest rates) to maintain the short-term 3-month mobilization level around 3-4% and the long-term 12-month level at 5-6%.

“On the basis of Vietnam continuing to ensure large balances, trade surplus, attracting foreign investment, remittances and tourism growth will support the USD/VND exchange rate to fluctuate around 3% annually,” Mr. Quang said and forecasted that in the fourth quarter of this year, the USD/VND exchange rate will fluctuate around 25,200 VND/USD, in the first quarter of 2025 it will slightly decrease to 25,000 VND/USD and continue to decrease from the second quarter of next year to 24,800 VND/USD, and in the third quarter of the following year it will be 24,600 VND/USD.

According to UOB, the US election results will have little direct impact on VND interest rates and the USD/VND exchange rate, as the domestic currency has been and is being tightly managed within the framework of long-term trade and investment activities rather than short-term investment and speculation.

Source: https://thoibaonganhang.vn/uob-ngan-hang-nha-nuoc-se-tiep-tuc-su-dung-linh-hoat-cac-muc-lai-suat-157481.html