• The liquidity position continued the previous abundant status for VND. On the other hand, the tension on USD liquidity intensified due to the Fed’s decision, the SBV’s target to support the economy and the persistent trend of USD outflow.
• The highly negative USDVND rate gap put pressure on the exchange rate which had moved sideways before rising steadily recently. The SBV has started doing outright bill sales with short-dated term, substantial amount and auctioned interest rate. It is probable that this intervention is to withdraw VND and propel VND interbank rates for the short terms, thereby, narrowing the swap rate gap, monitoring the pace of exchange rate and relieving the pressure on FX reserves.

USDVND interest rate differentials deepened due to Fed’s rate hike

The VND interbank interest rate remained low last week for overnight and one-week terms, where most of the interbank transactions occurred. Balance of the banking system on Citad account was maintained at historical high, over VND 400 trillion. Deposit balance of the State Treasury at the state-owned banks was about VND 110 trillion, continuing to support the VND liquidity. In addition, the State Treasury bought USD 75 million from commercial banks last week, equivalent to about VND 1,741 billion injected into the banking system.

Credit to the economy maintained its momentum, reaching 8.2% YTD as of June 10 compared to 7.6% as of May 23. Large banks were reported to approach the credit growth quota, thereby, limiting the pace. On the funding side, deposits expanded at a slow pace also, which might be attributed partially to the USD outflow. Deposit growth was 3.8% YTD as of June 10, only 0.3% higher than that of May 23. Deposits in foreign currencies were the negative factor by dropping 2.3% YTD, deteriorating from the -0.1% decline as of May 23.