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The money market witnessed another uneventful week with minimal fluctuations in interbank rates, G-bond yields, and the USDVND exchange rate. Although this week marked the beginning of a wave of T-bill maturities, the overnight (ON) interbank rate experienced a slight decline. Banks tend to refrain from reinvesting the maturing T-bills, leading to soft liquidity pressure in the upcoming weeks. Turning to the FX market, the exchange rate remained steady, supported by a strong trade surplus despite a notable recovery in DXY. The stability in the FX market will provide SBV with room to implement future easing measures.

The liquidity condition generally improves after the holiday with lower interest rates for short-term loans and increased traded value, and G-bond yields tend to reduce for first and second markets. The development in the money market continues to reflect the government’s efforts in promoting credit activities to support domestic enterprises after the economy experienced a depressed performance in the first quarter. Furthermore, USDVND remains stable in the late phase of the Fed's rate hike, providing Vietnam’s monetary authority more confidence to follow easing decisions.

Vietnam's money market this week shows a modest but implicit move even just with two trading days. On one hand, interbank rates tend to increase when the liquidity condition seems to need more time to stabilize after a long holiday. On the other hand, USDVND is flat although one more 25bps increase in the Fed fund rate was released. Furthermore, the 10-year G-bond yield declined for the fourth consecutive week although. Therefore, we predict that participants might await more easing signals from the monetary authority after a depressed set of economic indicators for April.

Liquidity pressure in the money market cooled down this week when the short-term mismatch in the TGA auction was partly resolved. On the other hand, 10-year G-bond yield and average deposit rates from SOBs were mainly unchanged after reducing significantly a few weeks ago, implying that the impact of recent policy rate cuts was fading and market participants likely await more signals from Vietnam’s central bank. Besides, USDVND has rebounded slightly when hitting SBV’s buying level.

The money market is in the early stage of the potential reversal of the first lending market after two rounds of policy rate cuts SBV delivered in March-mid. Accordingly, deposit rates have declined for mid-term tenors (from one month to below six months). This development could facilitate commercial banks to lower lending rates, causing lending activities to improve next month. As per liquidity condition, the overnight interbank rate surged this week, likely attributed to the potential mismatch between depositors and banks in the first stage of interest rate reversal and increasing demand for reserves in the upcoming long holiday.

Interest rates in the money market continued to slide for the second week after SBV’s rate cut decision. The overnight interbank rate made another sharp drop this week to hit the year low and even was approaching the ultra-low region in the pandemic. Besides, USDVND remains stable, while the global FX market experienced a stormy week under the banking crisis. We predict funding costs in the money market to be low more when the central bank tends to navigate its monetary tools to support domestic production and economic growth at this time.

Vietnam’s money market remained stable heading to the release of U.S. CPI next week, a decisive consideration for the Fed’s monetary rate decision in March. Overnight interbank was steady at 6% when SBV withdrew money from its counterparties for the sixth consecutive month under slowing credit activities in the first market. For the next week, we expect that raising concerns about the U.S. banking crisis following SVB’s failure would relieve Fed’s hawkishness and put downward pressure on USDVND.

The money market this week shows us a soft liquidity condition attributable to lower demand for borrowing in the manufacturing and real estate sectors in the first months of 2023. Interest rates dropped notably, especially for short tenors, when SBV offered more T-bill contracts with a reduced winning rate. In addition, the G-bond yield recorded one more week of reduction likely due to the principle of an alternative channel to lending activity. SBV seems to pilot a reduction in funding costs for the money market in its attempt to lower the interest burden for local enterprises. However, a lower overnight rate resulted in a negative spread in interest rates between the local currency and USD, putting more pressure on the stability of foreign exchange in the coming weeks. Therefore, the development of the FX market will hint us SBVs’ stance in the near future.

This week shows a stable money market after Tet characterized by extending liquidity support from the central bank. SBV continues to provide more money for its counterparties by offering more repo and fewer T-bill contracts. The G-bond market attracted fixed-income investors in the first week of this year when yields dropped significantly in both primary and secondary markets. As per FX development, USDVND remained low after Fed delivered an expected 25bps. However, we predict USDVND to rebound in the coming weeks when remittance inflows will become limited after Tet.

Although SBV sustains the support liquidity to commercial banks this week but with has a high funding cost under the pressure of USD outflow. The overnight interbank rate converges to the level that SBV offers in repo and T-bill transactions. We predict that the funding cost in the money market will remain high in the coming weeks.