Research Center

Money market this week faces turbulence due to the liquidity risk aversion related a troubled bank. Overnight interbank rate surged on the beginning of this week but retreated later as the central offered repo contracts with a significant amount at a much cheaper cost. We predict that the central bank could switch its priority to the stability of the banking system in the short-term with further money injection before returning to a longer-term objective of forex market stabilization.

Interest rates in the money market were steadily high as SBV continued to calibrate the OMO tool to reshape the new interest rate corridor at a higher base. Furthermore, banks tend to require additional liquidity assets to meet the regulatory set of ratios and put more upward pressure on the liquidity condition in the banking system. We predict that SBV would keep the exchange rate stabilization as its priority, causing short-term funding costs to be persistently high in the coming weeks.

SBV on Thursday decided to raise several policy rates for the first time since 2012 following the Fed’s decision of a 100bps rate hike. Besides, the central bank has significantly increased the T-bill offering with higher winning yields to ensure the new interest rate corridor would be effective. This decision implies that money market interest rates would be persistently high this year to counter the capital outflow due to a stronger DXY.

Short-term liquidity pressure in the money market has eased this week with a lower overnight interbank rate. It seems that the turbulence in the previous week resolved as the central bank was firmly forming a new interest rate corridor of around the 4% level. However, we could see some development as a front-run to Fed's rate decision next week. Vietnam's money market could be highly volatile with a high possibility of a more elevated short-lived interest rate after the release of the FOMC’s decision.

Money market transactions return after a long holiday with a turbulence in the interbank market when the liquidity condition seems to be thinner. Traded value declines significantly while interest rates soar, indicating that liquidity providers seems more cautions under the solid SBV’s stance in reducing USD-VND interest rate spread and recent development of the DXY.

The liquidity condition in the money market remains tight this week under a long holiday ahead and the firm stance of SBV in raising short-term interest rates. Winning yields of OMO instruments are still high, and the interbank rate uptrend is strengthening. In our opinion, interest rates in the money market could sustain high in the coming weeks as the monetary authority seems to prioritize the goals of stabilizing the local currency value against the surging U.S. dollar.

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.