VIETNAM - US$7.64 billion liquidity support for Tet won’t boost inflation: central bank

by lexie Mon Feb 06, 2012 12:36 pm

February 6, 2012

US$7.64 billion liquidity support for Tet won’t boost inflation: central bank

The VND160 trillion ($7.64 billion) supplied by the central bank for liquidity support before the Lunar New Year (Tet) holiday will not cause any impact on inflation, said a central bank’s official.

"The money pumping is a regular activity of the central bank to help the banking system meet rising demand for payments on the occasion of the Tet holiday,” said Nguyen Thi Hong, head of monetary policy department.

"The capital injection via the OMO is mainly for the very short term, so there is not enough time for the credit institutions to use this capital to lend the economy,” Hong said.

“In addition, the growth targets for total money supply and credit are under the tight control of the central bank, "Hong said.

According to Hong, the money supply was primarily carried out through open-market operations (OMO) from January 9-20.

OMO is the channel that provides short-term capital to the banking system, mainly 14-day terms, and there were only a few sessions with 21-day terms, Hong said.

The lengthening of the 14-day to the 21-day term is to ease banks’ liquidity constraints in early trading sessions of the post-Tet period since they don’t have to repay a large amount of money in a short period.

In January, the State Bank of Vietnam (SBV) pumped more than VND59.6 trillion ($2.85 billion), doubling the net-injection volume of the VND30.7 trillion it pumped in January 2011.

As the central bank had applied the 21-day term to accompany the normal 7-day and 14-day terms for OMO lending, the money it withdrew was lower than last year.

The move aimed to meet the liquidity of commercial banks and prevent the pumping of a large amount of capital into the market at the same time, said the SBV.

According to the SBV, in the week between January 7th and 13th, interbank rates inched up 0.44-1.92 percent for lending ranging from 1 week to 2 months, and the rates respectively soared 6.08 percent and 3.56 percent to over 20 percent for 9-month to 12-month terms.

The central bank also said the banking system’s liquidity is abundant in the post-Tet period.

"After Tet, the money has been re-deposited into the banking system. Currently, the credit institutions’ liquidity is abundant," Hong said.

The system’s liquidity situation has generally improved from the Tet holiday, compared to in 2011, since the SBV had used diverse money supply channels for capital support.

http://www.vietfinancenews.com/2012/02/us764-billion-liquidity-support-for-tet.html#more