UOB upholds its growth forecast for Vietnam at 6.0% in 2024. (Photo: Vietnam+) Hanoi (VNA) - Amidst economic recovery, with the likelihood of interest rate cuts diminishing, Singapore-headquartered United Overseas Bank (UOB) believes that the State Bank of Vietnam will maintain its refinance rate at the current 4.50%.
Recovery momentum sustained throughout 2024
According to UOB experts, data for the first two months of the year indicated a 17.6% increase in exports compared to the same period in 2023. Industrial production rose by 5.7% compared to the average of -2.2% during the same period in 2023.
Vietnam's Purchasing Managers' Index (PMI) for January and February 2024 registered above 50 as compared to the average index of 49.3 recorded in the same months of 2023.
In the economic growth forecast report for Vietnam in the first quarter of 2024, UOB experts noted that the figures indicate a general momentum in manufacturing and external trade. They expect this pace to be sustained, especially in the second half of 2024 as semiconductor recovery strengthens and global central banks begin to implement more appropriate interest rate policies.
The UOB suggests risks from external events continue to weigh on the global economic outlook (including conflicts in Eastern Europe and the Middle East). Vietnam's prospects are reinforced by semiconductor recovery, stable growth in China and the region, as well as beneficial shifts in supply chains for Vietnam and ASEAN.
UOB believes that the State Bank will continue to maintain stable policy interest rates. (Photo: Vietnam+) UOB experts maintain their growth forecast for Vietnam at 6.0% in 2024, within the official target range of 6.0%-6.5%. In the first quarter of 2024, they expect the GDP growth rate to decrease to 5.5% compared to the same period due to the influence of the Lunar New Year holiday. The inflationary pressures as predicted will continue to rise, with full-year CPI forecast to increase to 3.8% in 2024, up from 3.25% in 2023.
Policy rate stability continues
The State Bank of Vietnam responded swiftly to economic downturns early last year by promptly reducing interest rates. The last interest rate cut occurred in June 2023, with the refinance rate being reduced by a total of 150 basis points to 4.50%.
With the pace of economic activity recovering, the likelihood of further interest rate cuts has diminished. Therefore, UOB believes that the State Bank of Vietnam will maintain its refinance rate at 4.50% as it stands presently.
Instead of further reducing interest rates, the government has shifted its focus to non-interest rate measures to support the economy.
One such measure is extending credit to borrowers (quantitative easing measures).
In 2023, bank credit growth reached around 13.5% year-on-year, slightly below the target range of 14%-15% for the year, as the central banks asked commercial banks to simplify lending procedures and improve business' access to bank loans.
Many positive factors can help stabilise the Vietnamese dong (VND). (Photo: Vietnam+) For 2024, the State Bank of Vietnam aims to promote credit growth to around 15%, with flexible adjustments based on economic developments throughout the year.
VND likely to experience mild recovery
UOB experts said the USD/VND was traded at a new high of 24,700 VND at the end of February, along with a significant appreciation of the USD against Asian currencies. Despite short-term depreciation of the Vietnamese dong, expectations of stronger GDP growth in Vietnam and a recovery in manufacturing and foreign trade are positive factors that could stabilise the dong.
The anticipated recovery of the CNY (Chinese yuan), which the VND typically mirrors, coupled with a weakening US dollar prior to the Fed's interest rate cut in June, is expected to mildly boost the VND./.
