Research Center

Vietnam’s money market has eased this week with significantly lower interest rates for short-term tenors and a higher trading value, implying that traders have regained confidence after a few weeks of SCB’s resolution. SBV tends to lower its money injection when the liquidity condition in the banking system seems to loosen and redirects the attention to the FX market stability.

Although SBV sustains the support liquidity to commercial banks this week but with has a high funding cost under the pressure of USD outflow. The overnight interbank rate converges to the level that SBV offers in repo and T-bill transactions. We predict that the funding cost in the money market will remain high in the coming weeks.

Although SBV returns to support liquidity to its counterparties this week, funding cost in the money market has increased significantly in preparation for FOMC’s meeting in November. The development in the foreign exchange market remains tight as the interbank USDVND this week still anchors to SBV’s selling price, indicating that FX traders are watching closely to Fed’s decision this time. Due to the importance of the Fed’s interest rate decision in November, we predict that interbank rates in the Vietnam money market will remain high for several next weeks.

Vietnam’s economic performance in October reflects obviously the impact of global slowdown when the low-base effect was fading. Trade activities and export-oriented industrial production were decelerating under the fewer new orders and weaker external demand. On the upside, domestic consumption remains favorable under the improving labor market, and the inflation remains under control. Furthermore, the rebound in FDI registration is a plus point as it might reflect that foreign investors are regaining the confidence about the business prospect.

The increase in consumer spending in turn helps the economy sustain its expansion. If for some reason consumer confidence declines, consumers become less certain about their financial prospects, and they begin to spend less money; this in turn affects businesses as they begin to experience a decrease in sales.

The money market has eased this week after SBV released liquidity support with a massive amount of repo contracts. Interbank rates were lowering for the second consecutive week with lower trading value, likely indicating that the liquidity problem in the banking system was resolved. In this, investors seem to watch closely the development of the FX market heading FOMC meeting in November. USDVND upturn remains persistent and it seems that SBV would return to implement monetary tools to stabilize the exchange rate in the next few weeks.

Manufacturing and Service industry both play essential role in boosting the social and economic development. A vibrant manufacturing and service base leads to more research and development, innovation, productivity, exports, and middle-class jobs. Furthermore, manufacturing and service help to raise living standards more than any other sector. The PMI plays an important role in helping financial market participants in making decision.

The money market this week is gradually returning stable when SBV aggressively offers more liquidity to resolve the turbulence. The overnight interbank dropped sharply after surging to the year-high last week. Given the much cheaper funding cost of the local currency, USDVND steadily advanced, heading to Fed’s decision in the November meeting. We predict that the central bank will retain its priority of liquidity stability in the short term before returning to a longer-term objective of forex market stabilization.

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.