Research Center

We see an easing path of monetary policy as SBV not only pauses the liquidity withdrawal in the open market but also lowers short-term rates in several funding markets, according to the Decision 418/QĐ-NHNN 2020. Short-term interbank rates reacted quickly to this decision when dropping to near all-time low levels, while short-term bond yields also fell off after the rate-cut signal. We forecast that short-term rates will likely stay at low levels until SBV offers T-bill auctions to reshape the new interest rate corridor.

The economic impact of the pandemic becomes more visible in April. Amidst the health crisis, consumers are not willing to spend as much as before, while producers also are not ready to boost production. Thus, trade turned negative, CPI extended the downward momentum, and the industrial production hit an all-time low. Nevertheless, we expect that the economic setback will be less severe as the global wave of re-opening will gradually take place in May.

From our viewpoint, SBV’s intervention of withdrawing liquidity out of the banking system in early April was considered a temporary liquidity adjustment rather than a long-term tightening monetary stance. On the other side, G-bond yields were back to its downward momentum in the month, showing market participants are fleeing to safe-haven assets amid the economic turmoil due to the COVID-19 pandemic.

In 1Q20, our data shows prominent evidence that the COVID-19 has put the economy into the stagnation phase. The GDP growth was under the consensus expectation, while inflation and trade activities also lost their upward momentum. FDI reflected a pessimistic sentiment of global investors not only in Vietnam but also around the world. We estimate that economic activities will keep shrinking in this quarter until the pandemic is under control.

In February 2020, the liquidity in the interbank market was still ample and SBV continued pouring the money away the banking system, via 91-day T-bills, to maintain the overnight interbank rate within the interest rate corridor.

The latest GSO’s estimate shows that the value of export rose by 33.76% YoY, posting USD18.6 bn, while the import value also moves up by 26.08% YoY, recording USD18.5 bn. However, after adjusting the reverse Tet-effect, the export and import values turned to decline by 3.14% YoY and 8.70% YoY, respectively. These figures were likely to indicate that the COVID-19 epidemic already but not fully effected to trade activities in this month.

In January 2020, we saw opposite movements of short- and long-term interbank yields in the mix of temporary tightening signals from SBV and rising concerns related to coronavirus disease. Short-term interbank rates generally bounced back after hitting their lows in previous month as the SBV send temporary tightening signals by using 91-day T-bill offerings.

According to the GSO estimate, the total trade value fell sharply by 12.08% YoY to reach USD38.1bn in January 2020. In particular, the value of export declined by 13.93% YoY, posting USD19.0bn, while the import value also decreased by 10.16% YoY, recording USD19.1bn. Tet holiday in January 2020, which was not only long but also extended, was the probable reason for the plunge in trade activity.

SBV withdraws liquidity from banking system in December. SBV drained VND46.4trn from the banking system through repo channel as the central bank only offered VND60.8trn repo with 14-day maturity to partly absorb VND107.1trn of due repo contract. Also, there are no T-bill auctions held in this month.