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The money market has eased this week after SBV released liquidity support with a massive amount of repo contracts. Interbank rates were lowering for the second consecutive week with lower trading value, likely indicating that the liquidity problem in the banking system was resolved. In this, investors seem to watch closely the development of the FX market heading FOMC meeting in November. USDVND upturn remains persistent and it seems that SBV would return to implement monetary tools to stabilize the exchange rate in the next few weeks.

The money market this week is gradually returning stable when SBV aggressively offers more liquidity to resolve the turbulence. The overnight interbank dropped sharply after surging to the year-high last week. Given the much cheaper funding cost of the local currency, USDVND steadily advanced, heading to Fed’s decision in the November meeting. We predict that the central bank will retain its priority of liquidity stability in the short term before returning to a longer-term objective of forex market stabilization.

SBV on Thursday decided to raise several policy rates for the first time since 2012 following the Fed’s decision of a 100bps rate hike. Besides, the central bank has significantly increased the T-bill offering with higher winning yields to ensure the new interest rate corridor would be effective. This decision implies that money market interest rates would be persistently high this year to counter the capital outflow due to a stronger DXY.

Short-term liquidity pressure in the money market has eased this week with a lower overnight interbank rate. It seems that the turbulence in the previous week resolved as the central bank was firmly forming a new interest rate corridor of around the 4% level. However, we could see some development as a front-run to Fed's rate decision next week. Vietnam's money market could be highly volatile with a high possibility of a more elevated short-lived interest rate after the release of the FOMC’s decision.

Money market transactions return after a long holiday with a turbulence in the interbank market when the liquidity condition seems to be thinner. Traded value declines significantly while interest rates soar, indicating that liquidity providers seems more cautions under the solid SBV’s stance in reducing USD-VND interest rate spread and recent development of the DXY.

Money has become more expensive this week as the central bank signals to the money market participants with stricter OMO transactions. Upward pressure on the USDVND remains high under the growing hawkish tendency, putting more pressure on SBV to keep the exchange rate stable. In our point of view, interest rates in the money market would remain high as the monetary authority seems to prioritize the goals of stabilizing the local currency value against the surging U.S. dollar.

Short-term interbank rates have eased under significant maturity of T-bills in recent weeks, followed by lower G-bond yields. However, we see that the liquidity relief could be short-dated when the USD-VND interest rate spread has increased, putting upward pressure on the USDVND. SBV significantly advanced the T-bill offering this week as a response to stabilize the exchange rate. Interest rates in the money market, therefore, could return to the upturn in the next weeks.

Interbank rates retreat when SBV tends to anchor the floating discount rate around 4% and matured amount of T-bill was significant this week. Therefore, the buying in the G-bond secondary market has returned but investors seem to remain cautious. Although the U.S. dollar was facing downward pressure around the globe, USDVND could back to the uptrend in the coming weeks when the interest spread between the dong and the greenback has returned negative.

Interest rates in the money market remained high this week as the thirst for short-term liquidity was unresolved. SBV has reduced its support to the banking system with a lower 7-day repo offering than the previous week. Besides, spot USDVND backed to approach SBV’s selling price as DXY returned to its uptrend with the strong release of the U.S. labor market.

Interest rates in the money market have surged amid the liquidity turmoil after SBV implemented multiple measures to reduce the interest rate spread between USD and VNVD loans. The overnight interbank rate has exceeded the discount rate of 2.50%, and SBV switched to a competitive auction method to quickly absorb the high demand for short-term liquidity. On the other side, USDVND has eased as the greenback globally weakened as other central banks, especially the ECB, were willing to catch up with the Fed in the interest rate race to tackle escalating inflation.