Research Center

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

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.

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.

DXY was muted this week on the lack of highly impacted U.S. releases, while funding costs for the dong witnessed a strong rebound under the persistent SBV’s liquidity withdrawal. Hence, USDVND made a notable gain after six consecutive weeks of decline. Vietnam’s central bank likely continues to lean more on global development, especially the Fed's monetary tendency, to decide its OMO implementation despite a soft liquidity condition under the slowing credit performance in the first market. Therefore, we predict the central bank will sustain high funding costs in the money market heading into the coming talks of Fed officials next week.

The money market likely reflects SBV’s prudence under a more hawkish Fed in the hike rate trajectory. Although liquidity condition becomes soft under the slowing lending activity in the first market, the central bank offers longer-term T-bill contracts at a higher yield to preserve the dong’s attractiveness. Therefore, we expect SBV’s stance to remain prudent until Fed’s rate hike trajectory is less hawkish.