OMO Makes Net Capital Inflows

The money from the State Bank of Vietnam (SBV) continues to be pumped into the economy via the open market operations (OMO) and the net inflow trend tends to continue.

 

A source from the State Bank of Vietnam has recently said the central bank will regulate the money supply in accordance with the plan approved by the Prime Minister by applying monetary and fiscal instruments to ensure the credit growth at 20-25 percent in 2010.

 

In the coming time, the market regulator will intervene to bring down the market interest rate. One of measures adopted is to increase the money supply and boost the liquidity on the open market at reasonable terms and rates.

 

Before that, at the beginning of 2010, particularly before and after the traditional new year, or Tet, the State Bank strengthened the open market operations to support the liquidity of the bankinvg system. Specifically, on December 23, 2009, the central bank funded credit institutions via the open market operations with two transactions a day and applied 7-day and 28-day terms (currently added 14-day term). The interest rates on this supportive channel was also reduced significantly to 7-7.5 percent per annum from 7.8 percent on 7-day term debts and kept stable at 7-7.3 percent since then.

 

At present, the central bank maintains the financial support for credit institutions through the open market operations with the two trading sessions each day. The winning volume in the past two weeks is maintained at as high as VND6,000-8,000 billion a day while the value was less than VND1,000 billion from March backwards, except for some days with VND4,000-6,000 billion and VND12,000 billion (March 22) .

 

In addition to greater winning bid value, in the past two weeks, weekend sessions also have high value, unlike previous months.

 

However, so far, transaction data and results and value of capital injected and withdrawn on OMO are not specifically and widely informed, except for summary statements released together with speeches by State Bank leaders or official statistics documents.

 

In recent time, when the central bank put into operation a new information portal, it updates bidding information and results more often but it does not reflects the capital source development clearly.

 

However, through some channels, several institutional investors fully update the above data to create a good reference for the market. The update, bound by information disclosure regulations, is not widely publicised.

 

And, according to the updated information from a reputable securities company, the State Bank of Vietnam pumps more capital into the system than it withdraws in the past three months.

 

Specifically, in a market information update sent to investors early this week, a securities company said: The monetary easing in recent times is getting clearer through the ongoing fund injection into the banking system through OMO. Net injection was VND19 trillion in May, VND9 trillion in June and approximately VND10 trillion in the first weeks in July.

 

Meanwhile, another securities company even provided more detailed funding data on OMO in recent weeks.

 

According to this source of information, the value of capital injected into the system via OMO by the central bank in the week ending May 28 was minus VND7,275 billion, VND5,783 billion in the week ending on June 4, VND113 billion in the week ending June 11, minus VND1,556 billion in the week ending June 18, VND5142 billion in the week ending June 25, VND1,554 billion in the week ending July 2, VND1,849 billion in the week ending July 9, minus VND278 billion in the week ending July 16 and VND5,597 billion in the week ending July 23.

 

Open market operation is any of the purchases and sales of government securities and commercial paper by a central bank in an effort to regulate the money supply and credit conditions. Open market operations can also be used to stabilize the prices of government securities. When the central bank buys securities on the open market, it increases the reserves of commercial banks, making it possible for them to expand their loans and investments. It also increases the price of government securities, equivalent to reducing their interest rates, and decreases interest rates generally, thus encouraging investment. If the central bank sells securities, the effects are reversed.

In the coming time, the central bank will continue strengthening this activity to bring down the interest rate and boost the credit growth.