VCN- The Monetary Policy Report issued recently by SSI Securities Company has shown many changes that need to be noted in the currency market in recent times.
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|The foreign exchange market was volatile in May 2018. Source: SSI|
Bank liquidity is not plentiful
May 2018 is the second consecutive month that the central bank has had to pump money into the system. However, the net pumping volume decreased significantly compared to April 2018, from VND 58.6 trillion to VND 10.900 trillion, and the volume of treasury bills in circulation decreased to VND 55.8 trillion. The issue of treasury bills remains the main tool used by the SBV to regulate liquidity in the past year in the context of good liquidity.
The interbank rates were more stable in early May 2018, but rebounded in the second half of May 2018, especially for the short term. In particular, the overnight interest rate increased by 1.6% and was the highest interest rate recorded after Tet.
The bank liquidity continued to affect the issue of bonds of the State Treasury. The State Treasury has been forced to raise interest rates, especially for 10-year and 15-year terms, with an increase in 16 and 13 basic points respectively, boosting secondary yields. The volume of issued bonds improved in May 2018, however, after 5 months of 2018, the State Treasury has completed29% of the year plan with the total value of VND 57,600 billion.
In general, the SSI said that the liquidity of the banking system is not worrying, but it is necessary to monitor the new factors, including trade deficit and withdrawal trend of foreign investors. According to the General Statistics Office, the trade deficit in May 2018 was estimated at $US 500 million, marking the return of trade deficit after several months of trade surplus. The foreign investors have promoted net sellers in the stock market, which may involve withdrawing capital from emerging markets as the Fed raised interest rates.
As the supply of foreign currencies decreased, the amount of VND to buy USD also decreased, affecting the supply of VND and banking liquidity. In addition, the deposits of the State Treasury can not be held in the banking system. The bottlenecks in the mechanisms and procedures for disbursement of public investment are also delayed for the development of the economy and society.
The pressure on the foreign exchange market
The exchange rate pressures increased in late May 2018, leading to the strongest fluctuation since the beginning of the year. The USD Index increased by 7% from the bottom in 2018 to 94.8 points, pushing the USD / VND exchange rate from VND 22,800 to VND 22,880, an increase of VND 80 in just one week, an increase of 0.64% compared to the beginning of the year.
The US inflation rate inched up to 2%, pushing US 10-year government bonds up sharply to 3.11%, the highest level in nearly seven years. However, after the report of the May meeting, it was suggested that the Fed could target inflation at around 2%. The yield on the 10-year note fell below 3%, but the value of the US dollar remained high.
Most of the major currencies depreciated against the US dollar, with the euro falling by 6.7% from its peak in 2018, GBP fell by 7.4% and JPY fell by 3.4%. The emerging currencies were also hit hard by the risk of capital inflows to the United States, with the Federal Reserve raising interest rates and rising global risks.
Brazil's BRL has plummeted and lost 11.2% since the beginning of the year, although it regained positive growth after years of recession. Russian's RUB and India's INR also fell by 7.0% and 5.3%, respectively. In the BRIC group, only China maintained a 1.99% increase against the US Dollar.
Other Asian currencies such as KRW (South Korea), IDR (Indonesia), PHP (Philippines) also fell. Against this backdrop, a slight depreciation of VND still helps Vietnam outperform other countries in the region.
According to SSI, the domestic exchange rate is still supported by many factors. With a record foreign exchange reserve of $US 64 billion, the SBV may be willing to intervene in market regulation when necessary. In fact, the central bank adjusted the central rate to VND 22,566 on 1 June 2018, which may be a clear signal for the market and then immediately made the exchange rate decrease by VND 40 to VND 22,840.
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However, according to Mr. Nguyen Duc Hung Linh, the Director of investment analysis and consulting at SSI, just like banking liquidity, trade deficit and indirect capital flows are unknown, which needs to be monitored closely.
By Nguyen Hien/ Hoang Anh