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The economic picture in August remained bright when the recovery in domestic consumption was still taking place. Besides, CPI remained stable amid a steady recovery of domestic consumption was a plus. On the downside, external factors raise concerns about the growth engine for the mid-term under the high global uncertainties. Although trade performance remained favorable due to persistently high new orders in the recent month, FDI registration has lowered significantly under the weakening purchasing power around the globe.

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.

July's figures show a more visible effect of the global slowdown on Vietnam's economy, especially in trade and production. Export turnover and industrial manufacture of export-oriented products have been hit by the output reduction from smartphone giants as a response to weaker demand concerns. However, domestic consumption continues recovering impressively and could be a shield for the economic growth in 3Q22.

Economic indicators in June showed a robust recovery of Vietnam’s economy thanks to favorable external and recovering domestic demands. Economic growth in the second quarter was unexpectedly high with impressive performances of both export-oriented manufacturing and services sectors. Furthermore, inflation was still under control in the context of rising global commodity prices. We expect that recovering domestic demand, backing by the pent-up demand, fiscal support, and the promising spending from foreign visitors, would be a foundation for the economic acceleration in the next quarter.

Short-term funding costs return cheaper following SBV’s tightening of credit quality. Accordingly, the selling pressure of government bonds on the secondary market has eased. However, we predict that the cheap short-term cost situation was temporary under potential growth in the first lending market.

Although trade activities experience a slowdown under the struggling global supply chain, May’s figures show that economic recovery remains solid with impressive growth in domestic consumption. We forecast that domestic demand, backing by the pent-up demand, fiscal support, and promising spending from foreign visitors, could be a key factor in economic growth in the next couple of months. On the downside, registered FDI hit a new low this year, raising concerns about fewer investment opportunities in a time of global monetary policy divergence and geopolitical uncertainty.