In May 2023, commercial banks simultaneously decreased their deposit rates.

Inflation cooled down

Vietnam's CPI grew 2.4% yoy in May 2023, the lowest growth in the previous 14 months, according to the General Statistics Office (GSO). Vietnam's CPI was unchanged month over month after declining by 0.3% the previous month. The decline in fuel costs contributed significantly to the transport price index falling by 3% from the previous month in May 2023.

In contrast, the primary driver of inflation over the past month was an increase in the average retail price of energy, which has climbed by 3% since May 4, 2023.

Monetary easing

The SBV made the decision to lower some policy rates effective May 25, 2023, including the refinancing rate (down by 0.5% points), the ceiling deposit interest rate for 1-month to 6-month maturities (down by 0.5% points),...

The maximum short-term lending rate in VND of credit institutions for certain economic activities was reduced by 1% pts to 5.0% p.a., the refinancing interest rate was decreased by 1% pts to 5.0% p.a., and the discount interest rate was decreased by 1% pts to 3.5% p.a. since the start of 2023. The maximum interest rate on deposits with maturities of less than one month and less than six months was also decreased by the SBV by 0.5% points and 1% points, respectively, to 0.5% per annum and 5.0% per annum.

Deposit rates will decrease further?

In May 2023, commercial banks simultaneously decreased their deposit rates. Since the start of May 2023, the average interest rates on 3-month and 12-month term deposits for the private banking group have fallen precipitously by 57 basis points and 29 basis points, respectively, while the average interest rates on the same terms for the stated-owned banks have fallen by 80 basis points and 40 basis points, respectively.

According to Mr. Dinh Quang Hinh, senior analyst at VNDirect, by the end of 2023, the average 12-month deposit interest rate will decrease to 6.5% p.a. The government will continue to support public investment, pumping more money into the economy. The SBV still has room to lower its policy rates. Weak credit demand due to the economic recession and bleak real estate market.

Outlook for FX rate

Due to market skepticism on the likelihood that the FED will lower policy rates in 2H23, DXY had a notable increase in May 2023. As of May 31, 2023, the DXY increased 2.6% mum to 104.3 points, reflecting market skepticism on the likelihood that the FED will lower policy rates in the second half of 2023. The exchange rate for the VND has been under considerable pressure as a result of the DXY's recovery and the SBV's recent policy rate cut. As a result, the US dollar to Vietnamese dong exchange rate rose marginally by 0.1% to 23,490.

"We continue to believe that there won't be much pressure on exchange rates in 2Q23, and we anticipate a range of 23,400 to 23,700 for the US dollar to fluctuate against the Vietnamese dong. This is because there is still plenty of USD supply due to improvements in the trade surplus and inflation as well as the growth of SBV's foreign exchange reserves in recent years, which have increased investor confidence in the VND", said Mr. Dinh Quang Hinh.