Research Center

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.

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.

The interest rate in the money market this week hovered on its historic low under the soft liquidity condition with ON slightly increasing by 7bps to 0.40% and 1W dropping by 25bps to 0.72%. As a result, the upward pressure on USDVND endures due to the persistently negative VND-USD interest rate spread. We predict that the phenomenon of a super-low funding cost to persist to promote economic activities for the few next weeks unless the pressure on exchange rate stability becomes significant.

The money market experienced significant fluctuations this week as several factors contributed to the volatility. The overnight interbank rate reached its lowest point in two years, while the widening interest rate gap between the US dollar and Vietnamese dong added pressure on the exchange rate. G-bond yields diverged between primary and secondary markets, and OMO remained inactive. Although credit growth showed positive momentum by the end of June, abundant liquidity persisted. Looking ahead, we anticipate further depreciation of the Vietnamese dong, adding challenges for Vietnam monetary authority to stimulate the economy.