The Great Liquidity Trap: How the State Bank is Balancing the VND/USD Tightrope
Hello again! It is a pleasure to be back with you. I am Daniel Linares, your analytical eye for the financial world here at https://www.financenewsrd.blogspot.com.
Today, we are diving into a high-stakes "balancing act" being performed by the State Bank. If you’ve been watching the markets, you know that the word of the day is liquidity. Specifically, the kind of "excess liquidity" that makes for a very tricky puzzle when you are also trying to manage exchange rates and inflation.
The latest data shows that the overnight interbank interest rate has essentially plummeted, dropping by half since its peak in early October. Let’s break down why this is happening and what the "Digital Detective" (our analysis) tells us about the future of your money.
The Great Liquidity Trap: How the State Bank is Balancing the VND/USD Tightrope
The financial system is currently swimming in cash. On October 10, the average VND interbank interest rate for overnight terms sank to just 0.66%/year. To put that in perspective, just a few days earlier on October 5, it was sitting at 1.32%.
When interest rates drop that fast, it tells us one thing: the banks have more money than they know what to do with, and credit growth is stagnating.
My Personal Experience: The "Ghost" of Inflation Past
In my years managing Finance News RD, I’ve seen this movie before. Whenever there is too much excess liquidity in the system without corresponding credit growth, it creates a "pressure cooker" effect.
I remember a similar period a few years back when the exchange rate started creeping up. I had a small business owner reach out to me, panicked because his import costs were rising daily even though the local "bank rates" were supposedly low. That taught me that the interbank interest rate is the true heartbeat of the economy—if it’s too low compared to the USD, your purchasing power starts to evaporate. It’s why I watch the USD/VND exchange rate so closely; it’s the ultimate reality check for any monetary policy.
The T-Bill Strategy: Net Withdrawing the Surplus
The State Bank (SBV) hasn't been sitting idly by. To soak up this extra cash, they have been issuing 28-day bills (T-bills). Through 15 sessions, the SBV has net withdrawn a staggering VND 165,695 billion.
Important Data Points on T-Bill Bidding:
Total Volume: Nearly 24,000 billion VND in just three recent sessions.
Winning Rate Drop: The interest rate the SBV pays on these bills fell from 1.3%/year to 0.68%/year.
What this means: Even though the SBV is trying to take money out of the system, there is so much of it that banks are willing to accept lower and lower returns just to park their cash safely.
The VND/USD Pressure Cooker
The biggest headache for the State Bank right now is the interest rate difference between the VND and the USD.
Table 1: VND vs. USD Interbank Rates (October 2023)
| Term | VND Interest Rate | USD Interest Rate | The "Gap" |
| Overnight | 0.66% | 5.04% | -4.38% |
| 1 Week | 0.97% | 5.06% | -4.09% |
| 1 Month | 1.64% | 5.38% | -3.74% |
When USD rates stay high (above 5%) while VND rates stay low (below 1%), investors naturally want to hold USD. This puts massive pressure on the USD/VND exchange rate, which recently increased to the 24,450 - 24,460 range.
Inflation: The Three Sharp Increases
While the average CPI for the first 9 months (3.2%) is below the government's 4.5% target, the monthly trend is worrying. Overall inflation has recorded three sharp increases in a row.
What’s driving the CPI?
Gas Prices: Increased by 8.37% in a month.
Rice Prices: Up 4.2% (global supply chain issues).
House Rentals: A massive 28.5% increase over the same period last year, which is keeping core inflation high at 4.5%.
The Silver Lining: Foreign Reserves and FDI
It’s not all doom and gloom. Vietnam has a few "shields" in place to protect the exchange rate:
Trade Surplus: Maintaining a healthy surplus of $21.7 billion.
FDI Capital: Disbursed FDI reached $15.9 billion in 9 months.
Foreign Exchange Reserves: Currently at $89 billion, with expectations to exceed $100 billion by the end of 2023. These reserves give the State Bank the "firepower" to intervene if the exchange rate gets too volatile.
Strategic Recommendations: How to Protect Your Assets
As an admin focused on your financial health, here is how I suggest you navigate this loosening monetary policy:
1. Watch the DXY (Dollar Index)
The USD is strong globally because the Fed is keeping interest rates "higher for longer." If the DXY continues to rise, expect more pressure on the VND. If you have international payments to make, consider locking in rates sooner rather than later.
2. Diversify Away from Low-Yield Cash
With interbank interest rates so low, keeping large amounts of "idle" VND in standard accounts is a losing game against core inflation. Look toward assets that benefit from disbursed FDI or sectors tied to the trade surplus.
3. Monitor the PPI of Services
The Producer Price Index (PPI) of services increased by 7.34%. This is a "leading indicator," meaning the prices you pay for services are likely to go up in the coming months as businesses pass those costs to you.
Frequently Asked Questions (FAQ)
Q: Why does "excess liquidity" happen if credit growth is stagnating?
A: Because people are still depositing money, but businesses are hesitant to borrow due to high global costs and slow demand. The money gets "trapped" in the banking system.
Q: Will the State Bank raise interest rates soon?
A: They are in a tough spot. Raising rates helps the exchange rate but hurts growth support. For now, they prefer using T-bills to manage the balance without a formal rate hike.
Q: Is the 4.5% inflation target safe?
A: For now, yes. The 9-month average is only 3.2%. However, the pass-through effect from high gasoline and service prices is a risk for early 2024.
Final Thoughts: The Optimal Balance
The State Bank is currently playing a sophisticated game of chess. They are using the bill issuance channel to find an optimal balance between supporting growth and preventing the exchange rate from spiraling.
As Daniel Linares, I believe our focus should remain on the money supply (M2) and the trade balance. As long as our foreign exchange reserves stay strong, the "tightrope walk" can continue without a major fall.
Are you feeling the rise in "house rentals" or gas prices in your monthly budget? How are you adjusting your savings strategy with these low interest rates? Let’s talk about it in the comments below!
Written by: Daniel Linares - Admin of
Publicar un comentario