Research Center

The money market held a silent tone this week, while the volatility in the FX market rose heading to the September FOMC next week. Overnight interbank rates stayed at nearly zero, representing excessive liquidity and slowing lending performance. USDVND renewed its upturn with a significant increase of 0.78% compared to last week. The persistence in negative swap spread and rising demand for import peak season may explain FX movement this week.

Interbank rates steadily stay at their lows when more announcements of lowering deposit rates are recorded. Although the aggregate loan balance returned to growth in August, the improvement was modest, partly causing the liquidity condition to be excessive further. 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. The FX market is in the spotlight this week when the September FOMC is counting down. USDVND ended seven rallying weeks with a 10bps reduction compared to last week.

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.

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 money market continues to witness the persistence of super-low interbank rates for the fourth consecutive week, accompanied by only marginal improvement in the lending performance of the banking system. The SBV has maintained its inactivity in the OMO for the second consecutive month, driven by excess liquidity and the government's preference for easing measures. The USDVND exchange rate remains under upward pressure as demand for carry trade activities increases, primarily due to the negative spread in interest rates between the VND and USD. Additionally, the uptrend in U.S. and Japanese G-bond yields exerts further pressure on the exchange rate.

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.

Cheap money, in terms of interbank loans, persists this week when modest improvement in lending activities cannot offset the funds increase from banks through recent bond issuance. Hence, SBV’s intervention in OMO was redundant in the situation of the government’s urge for more dovish actions and liquidity excessiveness. We predict the cheap money phenomena in the money market to endure unless the loan performance improves significantly or Fed reveals a more hawkish than expected decision, threatening the stability of USDVND.