Research Center

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.

Vietnam's economy in 3Q22 recorded the highest growth rate in recent years, demonstrating the successful normalization of economic activities since the fourth quarter of last year. Remarkable recovery in domestic consumption and strong foreign demand contribute primarily to the success of the economic performance this quarter. Furthermore, inflation continues to be under control within the country despite being a global headache. We predict that Vietnam’s economic activities will be less favorable in 4Q22 because the low-base effect is fading and the impact of the global recession is becoming more significant.

The inflation is going to be high and remain higher, that means it will lead to a rising of interest rate, as government attempt to get prices under control. Understanding inflation is crucial to investing because inflation can reduce the value of investment returns.

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.

The inflation is going to be high and remain higher, that means the neutral rate in the economy is also going to be higher because the price of goods are going up. When the rate goes up it will directly affect monetary and financial conditions, which in turn have a bearing on critical aspects of the broader economy including employment, growth, and inflation.

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.

Vietnam’s economy would likely shine in 3Q22 with impressive GDP growth and well-controlled inflation under the ongoing recovery. In our opinion, trade activities would slow down in the third quarter while favorable domestic consumption would be the primary pillar for economic growth. Therefore, we predict real GDP to grow by 12.16% in 3Q22.

The Philadelphia Manufacturing index (Philly Fed report) gives a detailed look at the manufacturing sector, how busy it is and where things are headed. Since manufacturing is a major sector of the economy, the Philly Fed report has a big influence on market behavior. Some of the Philly Fed sub-indexes also provide insight on commodity prices and other clues on inflation. That is the reason why Fed is watching this indicator to find the best monetary policy.

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.