Catching “new breezes”, forecasting interest rates and interbank rates will fall deeply

4 min read

From the beginning of this week, the State Treasury (State Treasury) began to expand its activities of buying government bonds (CP bonds) with all working days of the week.

Earlier, after the first session on July 13, the Hanoi Stock Exchange (NHX) – the focal points for organizing coordination – expected the business to “bring to the TPCP market a new wind with the participation of investors especially SBV, contributing to perfecting the TPCP market with new operations, increasing competitiveness in the market, promoting TPCP transactions in the secondary market and supporting liquidity for market members”.

The money market accordingly recorded a new flow and had a stronger direction. At the same time, the State Bank of Vietnam (SBV) has decided to sharply reduce the buying price of foreign currencies, creating a “new breeze” when switching from buying foreign currencies by term to buying for spot.

In the sum of these impacts and new factors, interest rates and the USD/VND exchange rate have been changing in the interbank market. And according to the forecast of the Vietnam Interbank Market Research Association (VIRA), these two indicators will continue to decrease deeply.

Monthly, vira members from commercial banks and securities companies make forecasts on four indicators: usd/VND exchange rate, 1-week interbank VND interest rate, 10-year government bond yield and CPI consumer price index compared to the same period last year. You can read in detail these forecasts at:

Before the alternating currents

The decision to sharply reduce the buying price of foreign currencies was made by the State Bank at the beginning of the second week of last August, along with the return to the spot buying method.

As highlighted in the previous forecast period, that change comes as September approaches, the month in which the market focuses its attention on the U.S. Federal Reserve’s policy meeting with the expectation of a narrowing of easing policy; the month in which the SBV’s supply of money through purchase of foreign currency futures has been minimized; The closing month of the fund is often full of certain fluctuations.

However, as above, the SBV’s return to buying foreign currencies for spot means creating an instant money supply flow when there is a transaction. At the same time, the fact that the State Treasury began to expand the business of buying government bonds is also a new supply channel, in addition to term deposit activities at commercial banks over the past time.

In the State Treasury’s government bond acquisition, one number was noticed. This clue calculates that the total limit in this quarter is 54,760 billion VND, while July and August are still limited, so they will mainly be accumulated in this September; the remaining problem is the demand of the market and the source of counterpart government bonds.

The market has more such supply-generating factors, while credit output is still facing major obstacles from the extended and prolonged social distancing restrictions in many provinces and cities across the country. Money source showed certain signs of stagnation and system liquidity continued to be abundant, interest rates in both market 1 and 2 tended to decrease recently.

Particularly in the interbank market, according to VIRA’s general forecast, the VND 1-week term interest rate fell to the right forecast range, the actual average in August was only 0.98%/year. This interest rate, according to VIRA’s forecast, will continue to fall deeply in September, averaging only 0.81%/year.

Also related to the above adjustment of the SBV, the spot USD/VND exchange rate in the interbank market fell sharply in August. There were certain fluctuations in the second half of August, but the interbank exchange rate has gradually slipped closer to the SBV’s purchase level (VND 22,750).

According to VIRA’s forecast, the spot price of USD in this market will continue to decline sharply in September, averaging at 22,778 VND, falling deeply compared to the actual average of 22,852 VND in August.

Stable trend persists

In the consumer price index CPI over the same period last year, the average forecast of VIRA members for this September is at 2.73%. Low inflation thus continues to extend the reality shown since the beginning of the year until now.

In that trend, the fourth COVID-19 outbreak is an overarching factor for commodity prices, focused on the limit on demand in the market. However, it is also the pandemic that leads to supply faults or major obstacles in the supply and demand connection, leading to the cost of transporting and distributing goods being increased and the impact of local price increases, especially for food and food groups.

Along with that, the average domestic gasoline price in the first 8 months of the year increased by 22.86% compared to the same period last year, which is also a notable impact on the rise of CPI.

However, in general, the forecast of VIRA as well as many organizations made over the past time is pointing towards the prospect of controlling inflation this year at a low level.

Regarding the 10-year government bond yield target, VIRA continues to forecast a slight slide in this September, the average is forecast to drop to 2.06% compared to the actual August average of 2.09%. However, compared to the beginning of the year with around 2.2-2.3%, the decline was very significant.

In the forecast area further, in the next 3 months, the 1-month interbank VND interest rate targets, spot USD/VND exchange rate and 10-year TPCP yield tend to rise again according to the general forecast of VIRA members. However, the volatility in this forecast compared to the present is not too large, the currency market with these key indicators is expected to continue to stabilize in the low zone before entering the peak payment and payment season at the end of the year.


Source: – Translated by