What happen next ?

Watching gov officials’ speeches, directives from gov etc, I think we see a notable shift in policies recently.
- focus of inflation fighting have shifted more to fiscal spending and fiscal policy instead of 100% focus on monetary few months ago. Series of measures had been taken. Namely: delay px increase on electricity, coal, clean water; recommendation from Industry and Commerce Ministry to have px stabilization funds to support oil & gas companies if crude oil px continue to go up (in fact, instructions from PM is that no more retail px increase on oil & gas products until Jun08); review gov investment projects and will delay projects that are less urgent etc

- Ministries and govi bodies hv to cut regular spending by 10%

- Today, deputy PM admitted that bad time has come and it might take as long as 1yr for VNese economy to revive its glory. GDP growth could be lower than 7.5% in 08 and inflation is here to stay

- PM consider to limit big SOE investment / expansion activities. These SOE can only invest / participate in biz that relate / support their core biz and maximum stake in such investment is 30%. Investment / participate in core biz, they have to hold at least 70% stake. This is aimed to limit these giants to develop itself into “cheabol” type of multi-industries power-houses (however, most of them already have multiple biz lines like real estate, financial services, fund management, securities brokerage etc)

- On monetary policy front, SBV officials tried to calm markets that there are no more tightening till Jun08. Banker Association agree to reduce deposit rate to 11% (from 12% ceiling given by SBV weeks ago), this actually pushed by SBV on back stage of course. There is no surprise if this lvl will be lower soon. Damage of too harsh tightening in Jan and Feb08 on equity markets and banking industry makes everyone to have a more balanced view on this that helps to take pressure off SBV for the time being.

- The only sticky point on monetary policy is 30% credit growth cap imposed recently … should this be done via absolute lvl of (higher) rates so that biz can adjust their biz plan accordingly or a rigid cap of 30% will could lead to certain private companies going belly up just because they no longer have access to bank financing. Big question mark is also on how 30% cap is implemented (30% cap on average or 30% cap on each bank … if the later then it’s not fair for small banks as 5% credit growth of big banks could be well over 30% growth of smaller bank in absolute amt of financing available to borrowers).

So after all this, what are the implications for markets?
- Greater tolerance for a less hawkish monetary policy. With Fed rate cut (and prob more on the table), VND interest rate will likely to come down in medium term (I would say 1m money market rate could range abt 7%).
- A great deal of attention has been switch to performance of equity markets, any negative moves relating to this market can lead to drastic measure to prevent it from happening. Stronger non-resident selling of local asset and repatriate fcy back home could potentially trigger response from gov and regulator. It could be in a form of minimum holding period, approval to repatriate fcy off-shore … actually the equity mrkt band reduction can be viewed as preventive mechanism to avoid massive sale of shares from non-residents. USDVND movement will very much depend on what happen next on this front.