VINACHEM

Interest rates for Vietnam dong loans on the interbank market rose sharply in the first two days of the week, especially for short tenors.

The overnight rate stood at 1.7% per annum last Thursday but nearly doubled to 3.2% on Tuesday. Meanwhile, the one-week rate climbed from 1.8% to 3.2%, the two-week rate from 2% to 3.5%, the three-week rate from 2.3% to 3.6% and the one-month rate from 2.6% to 3.8%.

These interest rate spikes are seen as normal because banks are increasing their Vietnam dong liquidity ahead of their earnings releases at the end of the month. Banks said despite the rising rates, liquidity in the banking system has remained good.

On open market operations (OMO), the State Bank of Vietnam (SBV) on Monday held auctions for 14-day and 28-day treasury bills with a respective value of VND3 trillion and VND5 trillion but found no buyers.

With VND150 billion of bills falling due, outstanding bills dropped to VND78.01 trillion. The rise of the U.S. dollar against the Vietnam dong was behind the SBV’s net withdrawals from OMO over the past few weeks.

Banks attributed rising dong transactions and interest rates to a possible pickup in interest rates at the end of the year when borrowing demand is normally strong. Enterprises will need more cash ahead of the New Year holiday in late January, so banks are holding back on dong lending on the interbank market.

Meanwhile, the annual overnight rate for U.S. dollar loans inched up to 0.6%, the one-week rate to 0.72%, the two-week rate to 0.83% and the one-month rate to 1.12%.

Increasing interest rates for Vietnam dong loans have led the dollar to weaken against the domestic currency in recent days.

The central bank has said it would sell dollars to keep the foreign exchange market stable. However, it has not sold dollars over the past two weeks. The dong briefly dipped to record lows against the greenback recently.

A number of banks forecast treasury bills worth a combined VND14 trillion would fall due this week and that the dong-dollar exchange rate would remain volatile. Tumbling dollar supply would lead interest rates for both dong and dollar loans to stay at current levels or inch up on the interbank market. - VNN