Numerous differences in capital market forecast this month

09-Oct-2020 Intellasia | BizLIVE | 6:02 AM Print This Post

As usual, every month, the Vietnam Interbank Market Research Association (VIRA) which includes representatives from the market research divisions of commercial banks makes forecasts about four main indicators: the sport interbank US dollar/dong exchange rate, the one-week dong interbank interest rate, the 10-year government bond yield, and the Consumer Price Index (CPI) over the same period last year.

In recent months, VIRA’s forecasts were quite stable, close to the actual market movements after that. However, since October, there have been many changes.

Covid-19 pandemic remains an important impact on CPI

From previous months, VIRA predicted that with the impact of Covid-19 pandemic, the pressure to control inflation could be put aside. In fact, the CPI was continuously low, creating the conditions to achieve the target of controlling inflation below four percent of the government.

In the report on CPI in September 2020, “Covid-19″ was repeatedly used by the General Statistical Office (GSO) to explain the price situation, as well as for the forecast in the first nine months of the year. in general, the epidemic has hit the aggregate demand, not only in the domestic but also to the prices of imported commodities (such as petroleum).

Vietnam has been successfully controlling this epidemic, but its effects still exist. Inflation, accordingly, was continued to be forecasted at a low level.

However, in VIRA’s forecast this month, there are some estimations that the CPI will gradually return to a rather high level of over three percent compared to the same period of last year. Some members forecasted the CPI at 3.06 percent to 3.69%. Meanwhile, many members said that the CPI increase will be just 2.3 percent to 2.6%.

Thus, there are fairly large differences in the CPI forecasts this month.

Will the US dollar/dong exchange rate stop moving sideways?

The more notable difference is found in VIRA’s prediction of the spot US dollar/dong exchange rate on the interbank market this month.

Previously, the spot US dollar/dong exchange rate on this market almost levelled off around 23,175 dong per US dollar. That was also the time the State Bank of Vietnam (SBV) net purchased foreign currencies (estimated at about 3.5 billion US dollars in the third quarter (Q3)).

This movement was the common point among VIRA members in September. However, for October, the difference is seen obviously when VIRA members provided different average forecasts. In general, most members pointed to the possibility that the average spot US dollar/dong exchange rate on the interbank market this month will rise fairly sharply compared to the 23,175 dong per US dollar level the level that the spot exchange rate moved around in recent months, and is also the buying rate listed by the SBV Operations Centre.

Specifically, many VIRA members forecasted that the average level of this exchange rate will exceed 23,200 dong per US dollar, and only one member expected it to remain low at an average of 23,174 dong per US dollar.

Interbank interest rates to maintain a record low level

In early October, the SBV simultaneously cut operating interest rates for the third time in 2020 and the fifth time since 2019. The controlled monetary easing policy continued to be seen.

As mentioned in the above, in Q3 alone, with a net purchase value of about 4.5 billion US dollar, the SBV injected in the market about 100 trillion dong. Meanwhile, in the T-bill channel, capital withdrawal was not recorded. In market 1, the gap between net mobilisation and net lending was high.

The above factors continued to create a “low-cost capital season” on the interbank market with record low dong interest rates. The dong overnight rate was only around 0.1 percent per annum in some sessions.

For the one-week term that VIRA chooses to forecast, some members expected the dong interbank rate to continue falling further in October, reaching an average of just 0.16 0.17 percent per annum. An average of 0.2 0.22 percent per annum is the common forecast.

Will the government borrow capital at lower costs?

As above, the large source of money and low interest rate level have been the conditions for the government to mobilise capital through the issuance of bonds, especially when credit cannot increase strongly and commercial banks are quite limited to find alternative channels.

In fact, in Q3 2020, the issuance of government bond yields set the highest record ever of up to 130 trillion dong, equalled to the sum value of Q1 and Q2.

On 10-year term the term that VIRA chooses to make monthly forecast the government bond yield was even lower. Specifically, by the end of Q3, the 10-year government bond yield was only 2.75 percent per annum, 23 percentage points less than the end of Q2, and 73 percentage points lower than the end of 2019.

Moreover, the general forecasts of VIRA are inclined to the possibility that the government bond yield on 10-year term will continue to fall in October to an average of 2.41 percent per annum, while the average of the previous month was 2.83 percent per annum.

Thus, with the large amount of capital source, abundant liquidity of the system of commercial banks and the lack of alternative channels to lending, the government continues to have a favourable environment to mobilise more, especially when the amount of bonds maturing in Q4 is estimated to be fairly large at about 50 trillion dong.

 

Category: Finance, Vietnam

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