By Quang Minh
Tue, June 11, 2024 | 11:03 am GMT+7
The Vietnamese central bank is poised to maintain its key policy rates at current levels for the remainder of 2024, as outlined by analysts from leading Singaporean bank UOB. This decision is influenced by steady macroeconomic conditions observed in the country.
Analysts predict a continued domestic economic recovery, despite looming inflation pressures and a weak Vietnamese dong (VND), which has recently depreciated to its record low against the U.S. dollar.
The State Bank of Vietnam’s headquarters in Hanoi. Photo by The Investor/Quang Minh.
Rather than altering interest rates, the State Bank of Vietnam (SBV) is prioritizing the enhancement of credit growth to foster economic activities. This includes support for emerging sectors, green transitions, circular economy initiatives, and social housing projects.
The SBV’s latest guidance, released on May 31, aims for credit growth of 5-6% by the end of June, alongside a reduction in lending rates by 1-2 percentage points. This will involve simplifying loan procedures, implementing cost-saving measures, and leveraging digital technology.
As of May 10, the total credit growth has reached 1.95% since the onset of 2024, equating to an increase of VND 264.4 trillion ($10.4 billion). This figure, however, falls short of the ambitious 14-15% growth target for the year, translating to an approximate VND 2,000 trillion ($78.62 billion).
In 2023, there was a year-on-year rise in bank lending by 13.5%, which similarly did not meet the 2024 target range of 14-15%. UOB analysts expressed that given the ongoing economic activities and inflation rates nearing the target, the prospect of reducing interest rates has considerably diminished. Any potential rate increase could inadvertently stifle credit and liquidity.
Consequently, it is expected that the SBV will maintain its refinancing rate at 4.5% while emphasizing efforts to facilitate loan growth and implement supportive measures.
Despite improvements in domestic economic fundamentals, the Vietnamese dong faces ongoing challenges due to the strength of the USD in Q2 2024, trading at nearly VND 25,500 per dollar.
The SBV has actively intervened in the foreign exchange markets to mitigate currency losses and enhance stability. Analysts reaffirm that the VND has a potential for recovery in the latter half of the year, as external pressures from the USD are anticipated to lessen ahead of a projected rate cut by the Federal Reserve in September.
Additionally, there may be a rebound in the VND linked to a recovering Chinese yuan (CNY) in the latter half of 2024, as signs of stabilization in China’s economy become more pronounced.
Current forecasts for the USD/VND exchange rate have been adjusted to 25,200 in Q3 2024, 25,000 in Q4 2024, 24,800 in Q1 2025, and 24,600 in Q2 2025.
GDP Growth on the Rise
UOB also anticipates continued economic momentum for Vietnam into H2 2024. The economy experienced a robust 5.66% year-on-year expansion in Q1, surpassing the 3.41% growth recorded in the same quarter of the previous year, representing the strongest Q1 performance since 2020.
This growth can be attributed to a revival in both the manufacturing and services sectors, alongside a notable acceleration in external trade to its fastest rate since 2021, reversing the declines witnessed throughout much of 2023.
Heightened foreign direct investment inflows indicate sustained confidence among investors regarding Vietnam’s political stability and competitiveness. FDI inflows from January to May surged by 7.8% year-on-year, reaching $8.3 billion by May—the highest in the first five months since 2018. This follows record inflows amounting to $23.2 billion in 2023.
Based on available data, analysts project that Vietnam’s GDP growth could reach 6% year-on-year in Q2. UOB has maintained its GDP growth forecast for Vietnam at 6.0% for 2024, aligning with the official government target range of 6.0-6.5%.
The Asian Development Bank (ADB) has retained its GDP growth forecast for Vietnam at 6% for this year, as reported in its April 2024 edition of the Asian Development Outlook.
Similarly, Standard Chartered Bank revised Vietnam’s GDP growth forecast down to 6% from 6.7% in January, citing weaker-than-expected Q1 growth and global trade challenges.
While there are signs of uneven recovery early this year, the World Bank’s “Taking Stock” report suggests that economic activities are expected to gain strength in the second half of the year.
According to the IMF, medium-term growth for Vietnam is projected at about 6.5%, driven by opportunities arising from digitalization and the green transition, as noted by their Asia-Pacific department director during the Regional Economic Outlook conference.