Ngân hàng Nhà Nước has resumed bond issuance after a 4-month hiatus, with a total volume of VND 30 trillion, a 28-day term, and an interest rate of 1.4% in two sessions on March 11th and 12th, 2024. According to Dragon Capital, this bond issuance is considered a necessary move to cool down the exchange rate and does not signify a change in monetary policy.
From the beginning of the year until now, the VND exchange rate has decreased by 1.6%, which is not too bad compared to other regional currencies such as JPY (-4.3%), THB (-3.3%), KRW (-2.2%), or TWD (-2.8%). Factors such as remittances, disbursed FDI, and a trade surplus continue to support the VND. However, in recent weeks, the exchange rate on the black market has continuously fluctuated, reaching 25,750 VND/USD, in addition to the gold price exceeding 82 million VND/tael and Bitcoin setting new highs.
These factors have led to a surge in demand for USD in the black market and created an almost 4% discrepancy between the exchange rate on the black market and the interbank market. In the face of this situation, the official VND exchange rate is likely to increase when funds are withdrawn, especially when import-export activities show positive signs of recovery (increased demand for imported goods for export). Therefore, the purpose of bond issuance is to absorb excess liquidity to reduce short-term exchange rate speculation pressure.
Dragon Capital believes that Vietnam’s long-term monetary policy is still heading towards loosening, with a priority of reducing interest rates for business loans to revive the economy. Even after last year’s bond issuance to absorb money, interest rates continued to decrease and the banking system’s liquidity remained abundant.
On the global market, the Fed is expected to come closer to the decision to cut interest rates in the second half of this year, and the tightening trend of Japan’s monetary policy after many years may weaken the USD. This will alleviate the pressure on the VND exchange rate and create room for Vietnam to continue its loosening monetary policy.
Regarding the stock market, Dragon Capital expects the average profit growth of listed companies to reach 15-18% for the top 80 largest companies, and this sector is currently benefiting from positive macroeconomic conditions. In the short term, the VN-Index may experience fluctuations due to profit-taking pressure or investor caution after a rapid increase since the beginning of the year. However, this foreign fund still maintains a positive view on the long-term prospects of the stock market.
