Research Center

Liquidity condition in the money market remains ample under SBV’s effort to lower lending interest rates to facilitate domestic production. Money continues flowing into the banking system with a massive T-bill maturity without being rolled over. Thus, the interbank rate reduced across the curve this week. Turning into the FX market, USDVND increases further under the DXY resurgence. However, thanks to the steady trade surplus in recent months, we foretell the exchange rate to be stable despite the increasing possibility that Fed will provide a 25bps hike in the meeting two weeks later.

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.

High liquidity demand for a long holiday characterized this week while G-bond and FX markets witnessed slight moves. Interbank rates, especially for short-term tenors, increased significantly and with a 2.5 time-higher in trading value on Friday. In the opposite direction, FX and G-bond markets saw trivial changes with a 0.13% decrease in USDVND and a 7bps-decrease in 10-year G-bond heading to the May FOMC meeting. We expect the liquidity pressure to ease after the holiday and interbank rates to cool down next week.

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.

Liquidity condition in the money market remains tight this week under the upcoming long holiday and possible mismatch in the auction of TGA deposits. Oppositely, interest rates on longer-term assets declined further following the recent SBV’s easing. 10-year G-bond yield returned to reduce by 8bps this week, and average deposit rates from SOBs were unchanged. Besides, the forex market experienced a calm week when USDVND hit 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.

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