T-bills are short-term valuable papers issued by the State Bank (SBV) to implement national monetary policy. The immediate objective is to regulate liquidity in the market, thereby affecting short-term interest rates and exchange rates. The long-term objective of this action is to stabilize exchange rates, interest rates, liquidity, etc. to achieve the long-term goals of monetary policy.
Issuing T-bills is a common practice of the Central Bank. During the period of 2018-2023, the SBV had conducted this operation many times a year.
Year | Number of executions | Average period per issuance (days) | Average issuance amount (VND billions) | Maximum issuance amount (VND billions) |
2023 | 6 | 17 | (96,170) | (239,163) |
2022 | 12 | 10 | (48,873) | (191,100) |
2020-2021 | 3 | 22 | (37,247) | (146,989) |
2019 | 13 | 10 | (27,151) | (68,997) |
2018 | 13 | 8 | (28,792) | (120,100) |
Sources: Fiinpro, SBV
Why has the SBV issued T-bills this time?
Issuing T-bills simply means that the SBV will withdraw surplus liquidity in the system of commercial banks. This has no adverse effect on the overall market liquidity, as the rates of lending and deposit remain unchanged. When the uncirculated surplus money is absorbed, the SBV will re-control interbank interest rates. The T-bill interest rate will now become the floor interest rate for the financial market. Therefore, if bad situations arise, it will be easier for the SBV to regulate exchange rates without causing major shocks to the currency market. This can be seen as a preparation step for unexpected developments that might come up.
The current exchange rate pressure is less than that of two years ago, so calling T-bills aims to allow SBV exert control over interest rates rather than alleviate pressure on exchange rates. This bidding has an indirect impact on the exchange rate through the interest rate difference. If SBV truly wants to control the base interest rate of the interbank market and influence the exchange rate, it will have to withdraw almost all of surplus money. When the amount of Citad deposits (demand deposits of commercial banks at the SBV) reaches to a reasonable level, the bidding for bills will cease. In addition, it also depends greatly on how the upcoming market situation will affect overall liquidity. For instance, in the event that the market requires substantial capital in the near future, the SBV will terminate the issuance and release liquidity subsequently.
How much is the SBV likely to withdraw this time?
Currently, the Citad deposit at the end of the 4th quarter is approximately 470,000 billion, whereas credit growth in the first two months of the year declined by 1%. Therefore, it can be inferred that the amount of surplus fund is substantial. During the withdrawal last September, the amount of Citad deposit was about 400,000 billion, and the highest amount of outstanding bills was approximately 255,000 billion.
Comparison between two T-Bill issuances of SBV | ||
21/09/2023-08/11/2023 | From 11/03/2024 | |
| Context | (1) Interest rate difference in VND and USD; (2) The DXY-Index increased sharply from 100 points in early July to 105 points on September 20 (before the issuance of T-bills) and has shown no signs of decreasing; (3) USD demand increases at the end of the year (4) Excess liquidity due to weak credit growth | (1) Interest rate difference in VND and USD; (2)The DXY-Index exhibits a tendency to decrease in comparison to mid-February, from 105 to a low of 102.9. The pressure from the strength of the USD is not as great as it was last September. However, the timing of lowering the FED’s rates becomes uncertain, resulting in fluctuations in the DXY-Index. (3) The demand for USD increases due to import recovery, repatriating profits at the beginning of the year, unusual oil import demand, and possible gold speculation. (4) Excess liquidity due to weak credit growth |
| Exchange rate | From the beginning of July to September 21, the VCB selling rate increased by more than 3%, the free market exchange rate increased by 2.5%. Exchange rate is on an upward trend, with pressure coming from both domestic and foreign sources. | From the beginning of January to March 8, the VCB selling rate increased by more than 1.7%, the free market exchange rate increased by 2.4%. Exchange rate is on an upward trend, with pressure mainly comes from domestic sources. |
| Liquidity | Excess liquidity, Citad balance is more than 400,000 billion | Excess liquidity, Citad balance is more than 400,000 billion |
| Interbank rate | 0.17% as of 21/09/2023 | 0.76% as of 11/03/2024 |
| T-bills rate | 1.13% for term of 28 days | 1.4% for term of 28 days |
The withdrawal action of the SBV at this time can be viewed as a normal liquidity regulation activity and may be a preparation step for upcoming fluctuations in the USD. The volume of the issuance is difficult to predict, depending on the willingness of the SBV. Nonetheless, it is possible that the volume of this round will be lower than that of the previous round in September 2023 due to the anticipated increase in liquidity requirements as credit demand gradually increases towards the middle of the year. Additionally, domestic USD demand may experience a cooling trend in the near future, and the action to issue T-bills is just a preparatory measure by the SBV when the USD pressure is not significant.
What impact does it have on the stock market?
There is no discernible technical correlation between the issuance of T-bills by the SBV and the stock market. Most negative reactions are due to psychological factors. In the near future, the central bank may continue issuing bills, but this does not mean a reversal in monetary policy because liquidity regulation is a timed and flexible operation. However, if the volume of issuance, frequency of each session, or interest rates on bills rise sharply, there may be a potential impact on short-term interest rates, thereby indirectly impacting the market in general. (*)
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(*) Disclaimer: This report is intended to provide information for investors to reference. The views, forecasts, and estimates in this report represent the opinions of the author at the time of publication and are subject to change without notice. Investors should form their own independent assessments based on the information in this report.
