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Although the aggregate loan balance returned to grow in August, the improvement was modest. Interbank rates remain cheap despite the long holiday, suggesting that the liquidity condition is persistently excessive and government policies in encouraging economic activities need more time to be material. In the vein of government support, the postponement of clauses 8, 9, and 10 of Article 8 of Circular No. 39/2016/TT-NHNN became effective in September. We expect SBV’s decision to ease a few requirements for borrowers and improve credit performance for the future months. In the notable development, USDVND rose further at a softer pace than the previous week primarily due to the prolonged situation of negative swap spread and higher demand for raw materials from importers to the peak season 2-3 months later.

Interest rates in the money market continued sticking to their lows this week due to the minimal improvement in the first lending market. However, in alignment with the government’s call for economic re-acceleration, SBV this week issued Circular No. 10/2023/TT-NHNN on suspending the effectiveness of restrictive measures, mentioned in clauses 8, 9, and 10 of Article 8 of Circular No. 39/2016/TT-NHNN, to facilitate lending to the private sector. We expect SBV’s decision to ease a few requirements for borrowers and improve credit performance for the next months. In the notable development, USDVND rose by 0.80% compared to last week, possibly due to higher demand for forward contracts and a stronger DXY following the speech of the Fed’s chairman.

U.S July Retail sales and Vietnam T&G exports According to the latest data from the U.S. Census Bureau, retail sales in the U.S. increased by 0.7% MoM in July of 2023, marking a fourth consecutive rise, and beating market forecasts of a 0.4% increase. In more detail, US clothing store sales grew 1.34% YoY in July, slightly decelerated from 2.69% in June, but remain higher than the one-year slowest growth of 0.32% in April. The potential upturn in US clothing sales, given a relatively strong correlation with Vietnam T&G exports, subsequently benefiting this export sector in the latter half of 2023.

Interest rates in the money market continued sticking to their lows this week due to the minimal improvement in the first lending market. However, liquidity providers tend to less eager in selling funds at this price range, showed by raising overnight rate and lower traded value. This situation was attributable to the recent government’s urge to reduce bank lending rates. In the notable development, USDVND rose for the fifth consecutive week but corrected significantly after failing to break out 24,000 level, signaling a temporary pause in its upturn.

This week, the money market observed enduringly low interbank rates for the fifth straight week, with only slight gains seen in the banking system's lending activity. The SBV's continued to keep the OMO inactive for a second consecutive month, resulting from ample liquidity and the government's easing stances. The USDVND exchange rate faces upward strain due to heightened demand for carry trades, driven by prolonged USD-VND negative interest rate gap.

The super-low interest rate phenomenon in the money market endures for the third consecutive week when lending performance in the first market improved insignificantly. SBV held its OMO inactive for the second consecutive month under the liquidity excessiveness and the government’s preference for easing measures. On the FX market, USDVND continued facing upward pressure when the negative spread in interest rate between the dong and the greenback was mounting demand for the carry trade activities. However, the increase in the exchange rate was moderate under the strong supply stemming from trade surplus and FDI inflow.

July’s data revealed a substantial improvement in economic activities with a softer decline in export turnover, an improving industrial production, and a renewed acceleration in retail sales. On one hand, U.S. consumers tend to regain their confidence during the late phase of the global interest rate hike, fastening the resolution of the overstocking and consequently promoting Vietnam’s export activities. On the other hand, retail sales recorded a higher growth rate than in June coupled with moderate inflation after a series of easing fiscal policies, likely reflecting an expanding demand. We predict economic performance to improve further next month due to softening external headwinds and expanding domestic demand.

Although the economic performance picked up in 2Q23 in the late stage of the global interest rate hike, we believe that the acceleration of economic activities will need more time to be material due to the insignificant improvement of external factors and the weakening recovery in domestic consumption. On the upside, public investment will continue to be a spotlight in 3Q23 thanks to the government's effort in realizing the significantly higher workload than last year. In addition, the well-controlled inflation and stable exchange rate provide more space for the monetary authority to follow the easing tendency in the next quarter.

Despite the pickup in June lending performance, the excessive liquidity in the banking system persists mainly due to the government’s urge for more dovish actions from SBV to bolster economic activities and the abnormal value of bond issuance from banks in recent weeks. Hence, the ON interbank rate hit its three-year low at 0.07%. At the same time, the bright U.S. inflation readings help alleviate the upward pressure on USDVND over the week. Overall, we expect a further dovish movement from SBV in the upcoming weeks to support economic growth when the slowdown in U.S. inflation becomes more visible.

Although the economic performance picked up in 2Q23 in the late stage of the global interest rate hike, we believe that the acceleration of economic activities will need more time to be material due to the insignificant improvement of external factors and the weakening recovery in domestic consumption. On the upside, public investment will continue to be a spotlight in 3Q23 thanks to the government's effort in realizing the significantly higher workload than last year. Investment opportunities exist in Power and Agriculture, Seafood industries that backed by El-Nino and China consumption themes. Besides, crushed stone industry also offers a lucrative choice from 3Q23 for those investors seeking for rising public spending theme. We expect the target range for VNIndex in 2H23 to be 1,260-1,340 points.