On June 20th, 2018, the State Bank of Vietnam (SBV) organized a Conference on the Open Market Operations (OMO), chaired by Deputy Governor Nguyen Thi Hong – Chairperson of the OMO Executive Board. Also attending the conference were the representatives from the Monetary Policy Department, the Monetary Forecasting & Statistics Department, the Foreign Exchange Management Department, the Banking Operations Center, the Information Technology Department, other members of the OMO Executive Board, representatives of 70 credit institutions that are participants in the OMO, and other relevant departments of the SBV.
In her opening speech, Deputy Governor Nguyen Thi Hong affirmed that the purpose of the Conference was to further improve the administration of OMO, to review the contributions of the OMO to the practical implementation of the monetary policy by the State Bank and the operations of the credit institutions. At the same time, the Conference was also a place to collect feedback from the market participants, in order to suggest ways to improve and develop this tool in the coming time, especially in the context of the Industry 4.0.
Speaking at the Conference, Mr. Pham Thanh Ha - Director General of the SBV Monetary Policy Department informed that: Over the past 20 years, under the direction of the SBV Board of Management, the close supervision of the OMO Executive Board and the efforts from all of the SBV departments; and the active contributions of the member CIs, the OMO has been continuously improved in terms of institution, operating modes and management mechanisms, and has become a regular and flexible monetary regulating tool of the SBV. At the same time, the OMO has actively supported the liquidity and safety of the CI system, positively contributing to the fulfillment of the socio-economic objectives set by the National Assembly and the Government.
Overview of the Conference
Open market operations were officially launched by the SBV on July 12th, 2000. Until now, OMO has developed in terms of scale, organization and quality of operations, becoming the main monetary regulating tool of the SBV, contributing to the effective implementation of the monetary policy objectives.
With the two-way trading of valuable papers, OMO has worked to regulate the usable liquidity of credit institutions in accordance with the monetary policy objectives in each period. The volume of open market transactions has increased sharply over the years, periodic transactions have also been on a rise. Transactional terms have been gradually diversified to suit the needs for usable liquidity of the credit institutions and the SBV’s requirements for monetary regulation. The SBV has combined the OMO with other monetary policy tools to send out the signals and implement the monetary policy. By analyzing the results of the open market operations, the SBV has more information necessary for the administration of the monetary policy.
Open market operations have been going alongside the credit institutions through the ups and downs of the market and the economy, promptly providing the credit institutions with usable liquidity in VND in times of difficulty, and regulating the usable liquidity in excess, regularly and timely informing the market about the SBV’s directions of the monetary policy, thereby increasing the effectiveness of the monetary policy and contributing to the effective implementation of the monetary policy objectives, contributing to the stabilization of the value of the currency and the inflation control, stabilizing and developing the financial and monetary markets, supporting economic growth. To date, the inflation has been controlled; Economic growth rate in 2017 reached 6.81%, the highest in 10 years; the average interest rates, the exchange rates, the foreign currency market, the gold market have been stable; the foreign reserves have reached a record high; the confidence in the Vietnamese dong has been strengthened. Many international organizations have spoken highly of the stability of the Vietnamese economy and the banking system in Vietnam, and recently, in April of 2018, Fitch Ratings has raised its credit rating outlook for Vietnam from "BB- (positive outlook)" to "BB (stable outlook)".
The success of OMO during the past few years is mainly due to the following factors:
Firstly, the SBV has amended, supplemented and improved the legal framework for the operations and development of the OMO, such as the issuance of Circular No.42/2015/TT-NHNN dated December 31st, 2015 regulating the open market operations, the Open Market Operation Procedures for No.01/QT-NHNN dated April 27th, 2016, Decision No.11/QD-NHNN dated January 6th, 2010 on the list of valuable papers that can be used in the SBV’s transactions, and some other amendments and supplements… With the continuous studies, timely supplements and amendments to the mechanisms, the rules and the technical procedures, the OMO has gradually become a flexible, effective and safe monetary instrument for the credit institutions. With the improvements in the procurement procedures, online bidding, payment on the day of bidding, the credit institutions can receive timely support on a daily basis with usable liquidity in order to ensure their payment capacity, especially during the time close to Tet (the Lunar New Year), the SBV conducts daily open market operations with large transaction volumes, contributing positively to maintaining the currency stability and the security of the system.
Leaders of the functional departments of the SBV presented at the OMO Conference
Secondly, the members’ participation is fundamental to the success of OMO. At the start of operations in July 2000, there were 20 CIs recognized as participants in the OMO, by now this number has increased to 70, including all types of CIs. Driven by the practice of open market operations, the State Bank has issued several legal documents, creating a favorable and open legal corridor in accordance with the law regarding open market transactions, enabling the long-term valuable papers such as government bonds to be used in the open-market transactions, online transactions between the SBV and other market participants..., and thus, the number of participants involved in the open market transactions has increased steadily over the years. This helps to spread the influence of the OMO over to the currency market. At the same time, through the OMO and the market participants, the SBV can better grasp the information and market developments, thereby increasing the effectiveness of the monetary policy management.
Thirdly, the remarkable achievements of the OMO as mentioned above would not have been made without the close attention and direction of the SBV’s Board of Management and the OMO Executive Board. The SBV’s functional Departments have made great efforts in studying, addressing the issues in a timely manner, ensuring smooth, safe and accurate operations and continuous improvements of this tool. At the same time, the SBV has been working closely with the Ministry of Finance, the State Treasury and Vietnam Securities Depository to provide information and organize the custody of valuable papers in service of open-market operations.
Also at the Conference, there were a lot of suggestions and recommendations to improve the quality of OMO made by the representatives of the commercial banks’ leaderships, such as Agribank, MB, Vietcombank, VIB, Lien Viet Post Bank, TPBank, HSBC, Standard Chartered Bank…
In her concluding remarks, SBV Deputy Governor Nguyen Thi Hong summarized over 30 proposals by the commercial banks into 6 groups of issues and requested the relevant Departments, the members of the Executive Board to answer, provide guidance or implement. The SBV Deputy Governor also complimented the Departments, units and individuals that have contributed actively to the OMO. Deputy Governor Nguyen Thi Hong hoped that in the coming time, the OMO will continue to be improved in order to better meet the requirements of the economic development in line with the international integration process of the banking sector.
VA