After becoming the first Asian central bank to cut its policy rate in early April, the State Bank of Vietnam cut again in late May before making another announcement on 16 June. Effective from June 19, the SBV’s refinancing rate is at 4.5%. (Photo: VNA) According to a release by HSBC Vietnam, after becoming thefirst Asian central bank to cut its policy rate in early April, the SBV cutagain in late May before making another announcement on 16 June. Effective fromJune 19, the SBV’s refinancing rate is at 4.5%.
The move is expected continue to reduce financing costs for businesses andhouseholds, thus spurring business investment and supporting consumersentiment.
HSBC said 2023 has been a tough year for Vietnam’seconomy. After seeing sharply slowing growth of only 3.3% y-o-y in Q1, Vietnamcontinues to brace for strong headwinds. While high frequency indicators pointto no further deterioration, there are also no clear signs that Vietnam’seconomy is bottoming out.
In addition to the urgency of supporting growth, the June 16decision reflects two of the SBV’s considerations. First, it has maintained itsoptimistic tone about inflation prospects, again citing that “inflation isunder control”.
Indeed, inflation has been consistently cooling down,recently moderating to below 3% y-o-y. This is further away from the SBV’s 4.5%ceiling, thanks to supportive global energy prices and easing local foodinflation. The 3% hike of the average retail electricity price at the start ofMay, which typically factors in inflation with a one-month lag, will also posemanageable upside risks. Given recent developments, HSBC announced the cutof 2023 inflation forecast to 2.6% (previously: 4.0%).
The second key consideration is currency stability. Despite recent strength in US dollar, Vietnamese dong has remained relatively stable, thanks to its improving currentaccount dynamics. While Vietnam has been suffering from trade headwinds, itsimports have plunged much more than exports, given its import-intensive naturein the manufacturing sector.
All in all, the HSBC said it slightly trimmed its 2023growth forecast for Vietnam to 5.0% (previously: 5.2%), taking into account aprotracted and a deeper-than-expected trade downturn. The bank now expect a meaningfuleconomic rebound from Q4, warranting further monetary support.
After delivering an accumulative of 150 basis point rate cuts in Q2, HSBCalso expected one more 50 basis point cut in Q3. This will likely bring Vietnam’s policyrate to 4.0%, reversing all tightening efforts in 2022, also on par with itsrate cuts during the pandemic.
However, HSBC experts said there is also a risk that furthercuts may not be needed in the last six months, if growth bottoms out earlierthan expected./.
VNA
