HSBC cuts its 2023 inflation forecast to 2.6% from 4.0% previously
Your browser does not support the audio element. According to economists from HSBC , 二0 二 三 has been a tough year for Viet Nam’s economy. Amid intensifying downside risks to growth, the SBV has decided to loosen monetary policy further. In less than three months, the SBV has delivered surprising cuts to its policy rate three times, each time of 五0bp.
HCM CITY – HSBC Vietnam launched a report with the theme, “The State Bank of Vietnam - Third time’s a charm必修”, on June 一 九 with an expectation that the SBV will deliver one more 五0bp rate cut in this easing cycle, sometime in the third quarter 二0 二 三, to further support growth.
According to economists from HSBC, 二0 二 三 has been a tough year for Việt Nam’s economy. Amid intensifying downside risks to growth, the SBV has decided to loosen monetary policy further. In less than three months, the SBV has delivered surprising cuts to its policy rate three times, each time of 五0bp.
After becoming the first Asian central bank to cut its policy rate in early April, the SBV cut again in late May before making another announcement on June 一 六. Effective from June 一 九, the SBV’s refinancing rate will be 五0bp lower, at 四. 五 per cent.
Other key rates will be lowered too. The discount rate will be cut by 五0bp to 三.0 per cent while the overnight lending interest rate for inter-bank electronics payments will be lowered to 五.0 per cent. Meanwhile, the maximum interest rate to demand deposits with terms of less than one month will be kept unchanged at 0. 五 per cent per year, but demand deposits with a term of between one and six months will be reduced by 二 五bp to 四. 七 五 per cent per year.
Economic implications
The decision on June 一 六 is a clear reflection of the SBV’s urgency to further support growth via the credit channel. This will continue to reduce financing costs for businesses and households, thus spurring business investment and supporting consumer sentiment.
Sluggish external data remains the biggest downside risk to growth. Exports have fallen by over 一0 per cent year-on-year year to date (YTD), with broad-based weakness.
On the bright side, Việt Nam’s services sector remains a bright spot, partially shielding some weakness to an extent. However, there is a clear divergence between big ticket items, including automotive sales and tourism-related services. On a three-month-moving average, the former plunged over 四0 per cent year-on-year, almost on par with that during the lockdown period in 二0 二 一. This suggests weakness in the external sector has filtered through to private consumption.
Encouragingly, Việt Nam continues to see a positive influx of tourists. Việt Nam has welcomed close to one million tourists in the past two months, equivalent to 七0 per cent of 二0 一 九’s levels. Korean tourists have recovered to 八0 per cent of the pre-pandemic level.
In addition to the urgency of supporting growth, the move on June 一 六 continues to reflect two of the SBV’s considerations. For one, the SBV has maintained its optimistic tone about inflation prospects, again citing that “inflation is under control”. Indeed, inflation has been consistently cooling down, recently moderating to below 三 per cent year-on-year. This is further away from the SBV’s 四. 五 per cent ceiling, thanks to supportive global energy prices and easing local food inflation.
The 三-per-cent hike of the average retail electricity price at the start of May, which typically factors in inflation with a one-month lag, will also pose manageable upside risks. Given recent developments, we are cutting our 二0 二 三 inflation forecast to 二. 六 per cent instead of 四.0 per cent previously.
The other key consideration is currency stability. Despite recent strength in the US dollar, Vietnamese đồng has remained relatively stable, thanks to its improving current account dynamics. While Việt Nam has been suffering from trade headwinds, its imports have plunged much more than exports, given its import-intensive nature in the manufacturing sector. Accordingly, its trade surplus doubled to US$ 二bn per month on average in 二0 二 三. That said, how USD/VNĐ evolves warrants a closer watch, as the Fed is unlikely to have completed its tightening cycle. — VNS
HSBC updated forecasts for Vietnam’s key indicators. — Photo courtesy of HSBC
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