An additional 50 basis points of interest rate cuts is expected to come in the next few months. (Photo: VNA)Hanoi (VNS/VNA) - The State Bank of Vietnam (SBV) isexpected to further take monetary easing measures to support the country’s GDPgrowth target of above 5 percent this year in light of a weak economic outlook,experts forecast.
“We forecast an additional 50 basis points of interest ratecuts, which would take the refinancing rate to 4.0 percent and discount rate to2.5 percent by end of 2020,” Fitch Solutions experts said.
The SBV cut its benchmark interest rates by 50 basis pointson May 12. Accordingly, the refinancing rate was reduced to 4.5 percent from5.0 percent, discount rate to 3.0 percent from 3.5 percent, and the overnightinter-bank lending rate to 5.5 percent, from 6.0 percent with effect from May13.
According to the experts, a weak growth outlook in 2020 willlikely spur further monetary easing. Fitch forecast Vietnam’s real GDP growthto decelerate to 2.8 percent in 2020, from 7.0 percent in 2019, as itcontinuously forecast weak external demand from a world economy in recession tohamper a recovery in Vietnam’s large manufacturing industry, and a generalaversion to international air travel due to contagion fears to continuebuffeting the tourism sector.
“That said, we now see upside risks to our growth forecast asVietnam is in the process of gradually reopening its economy with the easing ofmovement restrictions, following quick and stringent COVID-19 containmentmeasures over the first four months of the year, in addition to growing reportsof companies seeking to relocate their production from China to Vietnam.”
As Fitch still views the Government’s real GDP growth targetfor 2020 of above 5 overly ambitious given a benign global economic backdrop,it believes that the SBV is likely to persist with its monetary easing cycleover the coming months, in the form of benchmark interest rate cuts andmacroprudential measures to support the Government’s achievement of its growthtarget.
In addition, Fitch said manageable inflation at below theGovernment’s 4.0 percent target in 2020 will also allow for further monetaryeasing.
“We forecast inflation to average 3.8 percent in 2020, downfrom 4.9 percent year-on-year over the first four months of 2020. We expectsubdued fuel prices due to the ongoing global supply glut to result in atransport price deflation and low core inflation due to weaker domestic demandto partially offset high food inflation brought about by the African swinefever which prompted a significant culling of the hog herd towards end-2019,pushing up meat prices.”
Despite Fitch’s expectations for further monetary easing, itmaintained its view that the key problem now is a lack of loan demand andinvestment appetite amid elevated economic uncertainty brought about by theCOVID-19 shock on the world economy. As such, further interest rate cuts atthis juncture will not provide much of a boost to the economy./.
VNA
