The State Bank of Vietnam (SBV) is likely to trim down interest rate from 14% per annum to 13% p.a. in the first quarter and further reducing it to 9% p.a. by the end of this year.

The State Bank of Vietnam (SBV) is likely to trim down interest rate from 14% per annum to 13% p.a. in the first quarter and further reducing it to 9% p.a. by the end of this year, HSBC Global Economics Research Team wrote in its Macro Asian Economics Q1/2012.

The State Bank of Vietnam (SBV) is likely to trim down interest rate from 14% per annum to 13% p.a. in the first quarter and further reducing it to 9% p.a. by the end of this year, HSBC Global Economics Research Team wrote in its Macro Asian Economics Q1/2012.

HSBC Global Research said:

While potential electricity hikes and regional food supply shocks will likely stoke inflationary pressures, we expect inflation to reach single digits by the end of 2012 thanks to a high base effect. The State Bank of Vietnam (SBV) is, therefore, likely to decrease the policy rate from 14% to 13% in 1Q 12, further reducing it to 9% by end-2012.

The government has taken much-needed steps to tighten fiscal and monetary policy. As a result, we expect the budget deficit to decrease to 3.9% of GDP in 2011 from 5.7% of GDP in 2010, and we forecast credit to slow to 13.0% of GDP in 2011 from 27.7% in 2010.

Vietnam’s historically volatile inflation has exposed key structural weaknesses in the economy, namely state-owned enterprises (SOEs), public investment and the banking sector. The government has pledged to improve investment efficiency by imposing discipline on all three areas. However, whether any real restructuring will take place depends greatly on the alignment of economic and political considerations; at the moment it looks unlikely as inflation is receding and growth is still robust.

 

Source HSBC