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The money market this week continued to incorporate SBV’s recent pivot in monetary stance. Funding costs for interbank loans remain relatively low under the modest growth in the first lending market. More notably, the second round of rate cuts came out after depressing economic release for the first quarter with a focus on lowering deposit rates. In this way, the monetary authority could facilitate commercial banks to reduce lending rates in the first market. Despite a stronger pivot signal, the FX market reacts mildly, providing SBV confidence to follow policies to support economic growth. Therefore, we predict that interest rates in the money market to remain low for the next few weeks

1Q23 shows the negative impact of the weak global demand on Vietnam’s economic activities, with a slowdown and even a reduction in export-related sectors. The export and export-oriented production saw significant declines in the first quarter of 2023, and the fruitful consumption in the first normalized Tet could not reverse the slowdown. On the upside, we saw improved industrial production, less severe trade performance, a tourism return, and well-controlled inflation in March, providing hope that economic activities would accelerate in the next quarter.

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.

This week could provide a turning point in SBV’s monetary management as the central bank released a 100bps rate cut which could trigger a reversal of the interest rate path soon. The decision came out under the context that the global banking turmoil has increased significantly the possibility that Fed would be less hawkish in the March FOMC meeting. Interest rates in the money market responded strongly to SBV’s announcement with significant declines in interbank rates and G-bond yields. This week signals that SBV might switch the aim to economic performance when Fed’s rate hike trajectory could end sooner than expected and economic slowdown looms. Hence, we predict interest rates in the money market to be low in the next coming weeks.

The Chinese economy has made a rebound in 2023, with major economic indicators seeing steady expansion, offering the latest evidence that the world's second-largest economy is set to secure a powerful recovery this year. Investors and economists pay special attention to PMI reading each month to get a pulse on the world’s second-largest economy.

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.

Vietnam’s economic performance in October reflects obviously the impact of global slowdown when the low-base effect was fading. Trade activities and export-oriented industrial production were decelerating under the fewer new orders and weaker external demand. On the upside, domestic consumption remains favorable under the improving labor market, and the inflation remains under control. Furthermore, the rebound in FDI registration is a plus point as it might reflect that foreign investors are regaining the confidence about the business prospect.