Vietnam central bank injects liquidity to cool interest rates ahead of Lunar New Year

HANOI – The State Bank of Vietnam has moved to ease a liquidity crunch by injecting cash into the banking system through foreign currency swaps and open market operations, according to central bank data.

Starting Feb. 4, the central bank began executing 21-day currency swaps with credit institutions. Under the mechanism, the regulator buys U.S. dollars at a spot rate of 23,864 VND and sells them forward at 24,882 VND to increase the supply of Vietnamese dong. The total volume for these swaps is capped at $1 billion.

The State Bank of Vietnam (SBV) further boosted liquidity on Feb. 5 by pumping 12.42 trillion VND into the market through its open market operation (OMO) window. The intervention carried an annual interest rate of 4.5%.

The dual interventions have led to a significant drop in interbank interest rates. Overnight rates, which peaked at 16-17% on Feb. 3, fell to a range of 8.5-9.5% following the liquidity injection.

Despite the sharp decline, rates remain high as commercial banks face significant demand for cash ahead of the Lunar New Year holiday.

The State Bank of Vietnam’s (SBV) recent intervention in the money markets represents a tactical response to seasonal liquidity pressures rather than a pivot in long-term monetary policy. A sharp spike in interbank rates to the 16–17% range underscored a localized liquidity squeeze, driven by a surge in physical cash demand ahead of the Lunar New Year (Tet) holiday.

To stabilize the system, the central bank deployed a dual-track strategy using Open Market Operations (OMO) and foreign exchange swaps. While OMO served as a direct tool to inject liquidity and cool soaring interest rates, the swap operations provided a more nuanced lever. By purchasing spot USD to provide immediate VND liquidity while simultaneously committing to sell the greenback back in 21 days, the SBV successfully absorbed exchange rate volatility without permanently altering the money supply.

This maneuver highlights Hanoi’s current policy priority: maintaining a delicate equilibrium between interest rate stability and currency management. Despite the recent cooling, elevated interbank levels suggest that cash demand remains significant. Market participants should expect the SBV to maintain its supportive stance and continue liquidity injections in the coming days to ensure the banking system functions smoothly through the holiday peak.

For the Vietnamese-American community—from the business owners in Little Saigon to those working in the nail salon industry and phở restaurants across the country—the State Bank of Vietnam’s efforts to stabilize the USD/VND exchange rate have a direct and tangible impact. This currency stability is particularly vital during the Tet season, when the flow of remittances peaks. Whether you are supporting family members on F2B visas, navigating your own H-1B or TPS status, or managing international investments via the EB-5 program, a predictable exchange rate ensures that the value of your hard-earned dollars is preserved upon conversion. By mitigating unfavorable fluctuations, these policies provide much-needed financial certainty, ensuring that the support sent home maintains its full purchasing power for your loved ones.