Central bank forecast to continue bill issuance amid abundant liquidity

The SBV last month issued more than VND110 trillion of 28-day bills, and the bills will mature this month. As a result, a corresponding amount of cash will be pumped back into the banking system if the SBV does not issue new bills. However, given that interbank interest rates are still low, KB Vietnam Securities Joint Stock Company (KBSV)’s analysts believe the SBV will continue to issue new bills to replace those that are maturing.

They explained that the move will be made as the overnight interbank interest rate returns to very low levels while the interbank foreign exchange rate and the interest rate gap between US dollar-denominated deposits and Vietnamese dong-denominated deposits remain high. This will stimulate dollar speculation and put pressure on the foreign exchange rate.

KBSV’s analysts do not rule out the possibility that the SBV might even increase the size and term of bills to be issued in the coming time.

In fact, in recent sessions, the SBV has moved to increase cash withdrawal through bill issuance. In the first nine trading sessions in early October, the SBV issued bills worth less than VND10 trillion each, but from October 12 to October 16, the SBV increased it to VND20 trillion each. Even on October 17, the bill value reached VND17.95 trillion and VND12.05 trillion the following day.

In the latest five trading sessions, the SBV withdrew VND90 trillion, marking the strongest net withdrawal series since the bill issuance channel resumed operations on September 21. At the same time, the winning interest rate also remained at a high level of 0.9-1%, indicating a more aggressive stance from the SBV in withdrawing cash.