Research Center

Vietnam’s economy decelerated significantly in 4Q22 under growing global uncertainties and the fading low-base effect. Economic growth just reaches 5.92% YoY this quarter when trade activities step into the red territory, and the resultant export-oriented manufacturing keeps decelerating. It is foreseeable that domestic production would slow down further when the global tendency of tightening monetary policy needs more time to pivot. External demand and subsequent new orders to contract manufacturers, including Vietnam, would remain gloomy. On the upside, domestic consumption remains favorable due to the upcoming shopping season, and inflation remains under control, allowing the government to pursue policies for economic growth.

The money market keeps stable this week as the overnight interbank rate dropped below 4.00% at the weekend. In response to this drop, the central bank issued T-bill contracts as a lower bound of the interest rate corridor to raise the short-term funding cost in the banking system. In the forex market, the dong appreciated further with a slight increase when catalysts for the DXY uptrend were increasingly limited.

Vietnam’s money market remained stable after Fed released its rate decision with an anticipated increase of 50bps. Interbank rates reduced notably with an unchanged volume compared to the last week, indicating that borrowers gained more bargaining power when the central bank persistently managed OMO transactions at 6.00%. The dong witnessed another appreciation this week, although Fed delivered a 50bps increase in its monetary policy rate, implying that the supply side was expanding.

The money market this week remained calm heading to the Fed’s rate decision in December-mid. The interbank market continued to experience stable development with significantly high volume and rate when SBV persistently managed OMO transactions at the rate of 6.00%. USDVND dropped further despite the upcoming 50bps or more increase in the U.S. policy rate, implying that what caused the scarcity in USD source has likely reversed.

The development of the forex market is in the spotlight this week when USDVND experienced a significant drop of 0.13% compared to the last week. The cooling USDVND is attributable to the less hawkish tone from Fed’s talks and possible foreign capital inflow via the capital market. Besides, funding condition in the money market keeps stable this week interbank trading value remains high with a slight change in interest rate.

The liquidity condition in the money market regained stability for the second week as the interbank market continued recording high trading volume despite the short-term funding cost being hard to be cheap as before. The foreign exchange this week suggests a few signals of a cooling upturn when SBV continuously provided minor adjustments in the selling price of the greenback, and interbank USDVND reduced further. However, we predict that the monetary authority will keep its eyes on developments in the forex market when the December FOMC is counting down.

The impact of weak global demand on Vietnam’s economy is highly observable this month when trade activities step into the red territory, and the resultant export-oriented manufacturing keeps decelerating. It is foreseeable that domestic production would slow down further when the global tendency of tightening monetary policy needs more time to pivot. External demand and subsequent new orders to contract manufacturers, including Vietnam, would remain gloomy. On the upside, domestic consumption remains favorable due to the upcoming shopping season, and inflation remains under control, allowing the government to pursue policies for economic growth.

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This week provides more evidence for the recovery in the money market, especially in terms of the trust, after a few weeks of SCB’s resolution. Interbank trading volume has increased significantly, likely indicating that participants are regaining confidence. However, the short-term funding cost is hard to return cheap when upward pressure on USDVND remains high. Hence, we predict the central bank to sustain OMO transactions at this price base to focus on forex stability.