In the recently published May bond report, Fiin Ratings stated that the USD/VND exchange rate remained high due to increased domestic USD demand from businesses and the State Treasury, further constraining supply. Meanwhile, the State Bank of Vietnam (SBV) flexibly adjusted the mid-rate to allow the market more self-regulation room.

According to Fiin Ratings, the DXY index recovered in May due to positive developments in trade negotiations between the US, UK, and China. However, this upward trend was short-lived as Moody’s downgrade of the US credit rating and rising policy uncertainty pressured the currency.

In the domestic market, USD demand surged as businesses ramped up imports of raw materials to rush order completion before the 90-day deadline and stock up for the peak season. Vietnam’s import turnover in the first five months reached USD 175.6 billion, up 17.5% year-on-year, with production inputs accounting for 93.8%. Imports from the US rose to USD 7.2 million, a 25% increase year-on-year, a move to ease potential tariff barriers and alleviate exchange rate pressure.

The State Treasury’s continued USD purchases to service foreign debt further tightened USD supply in the market. Despite a slight downward trend, the exchange rate remained high in May. The SBV proactively adjusted the mid-rate higher. Going forward, a predicted weakening of the US dollar may ease exchange rate pressure, allowing the SBV to widen the ceiling band for market self-regulation instead of direct intervention using foreign reserves.

On the interest rate front, Fiin Ratings noted that the downward trend in deposit interest rates has slowed as some banks have started to raise rates again. Credit growth in the first four months reached 4.27% year-to-date, benefiting from the low-interest environment, making borrowing an attractive option for businesses.

After the interbank interest rate dropped significantly to 2.54%, the SBV scaled back open market operations (OMO), resulting in maturing funds exceeding new injections. However, the SBV resumed net injections of approximately VND 100.2 trillion (-54.5% mom) as interbank rates rebounded, with total OMO outstanding from the beginning of the year to May 30 at VND 50 trillion. In May, the market’s liquidity was generally abundant, with the overnight interbank rate fluctuating between 3.78% and 3.92% and ending the month at 3.10%.

“We believe that the room for further reductions in deposit and lending rates is narrowing amid the risk of US tariffs on Vietnamese exports (expected at 20-30%). Additionally, the Fed’s delay in cutting rates to counter inflation may contribute to sustained exchange rate pressure in the coming period,” Fiin Ratings forecasted.

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