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The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. The CPI is widely used by financial market participants to gauge inflation and by the Federal Reserve to calibrate its monetary policy. Businesses and consumers also use the CPI to make informed economic decisions. Since CPI measures the change in consumers' purchasing power, it is often a key factor in pay negotiations.

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.

The unemployment rate and non-farm payrolls are commonly used indicators by governments and analysts to measure economic health. The interaction term between the federal funds rate and business confidence has a negative relationship with the unemployment rate, indicating that a decrease in business confidence and the federal funds rate would actually produce an increase in the unemployment rate. Therefore, FED is watching these indicators closely to appropriately adjust their policy.

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.

The economic picture in August remained bright when the recovery in domestic consumption was still taking place. Besides, CPI remained stable amid a steady recovery of domestic consumption was a plus. On the downside, external factors raise concerns about the growth engine for the mid-term under the high global uncertainties. Although trade performance remained favorable due to persistently high new orders in the recent month, FDI registration has lowered significantly under the weakening purchasing power around the globe.

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.

Interest rates in the money market remained high this week as the thirst for short-term liquidity was unresolved. SBV has reduced its support to the banking system with a lower 7-day repo offering than the previous week. Besides, spot USDVND backed to approach SBV’s selling price as DXY returned to its uptrend with the strong release of the U.S. labor market.

Interest rates in the money market have surged amid the liquidity turmoil after SBV implemented multiple measures to reduce the interest rate spread between USD and VNVD loans. The overnight interbank rate has exceeded the discount rate of 2.50%, and SBV switched to a competitive auction method to quickly absorb the high demand for short-term liquidity. On the other side, USDVND has eased as the greenback globally weakened as other central banks, especially the ECB, were willing to catch up with the Fed in the interest rate race to tackle escalating inflation.