Economic Analysis - SBV To Stay The Neutral Course As Policy Room Narrows - MAR 2018


BMI View: We expect the SBV to keep interest rates on hold over the course of 2018 , with the respective benchmark annual refinancing and discount rates staying at 6.25% and 4.25%, even though policymakers appear to have an easing bias. The policy room for further easing is likely to narrow over the coming months as the US continues to hike interest rates while inflation trends higher.

We maintain our expectations for the State Bank of Vietnam (SBV) to keep its benchmark annual refinancing and discount rates unchanged at 6.25% and 4.25%, respectively, over the course of 2018 to balance opposing economic objectives and maintain macroeconomic stability. The central bank has a mandate to support robust economic growth, while at the same time, keep inflation under 4.0%, build foreign reserves, and stabilise the exchange rate. However, we note that risks to our interest rate view are slightly tilted to the downside given that the SBV has a low degree of independence, and the government has been advocating lower interest rates. For instance, in a banking conference on January 9, Prime Minister Nguyen Xuan Phuc called for a further reduction in lending rates among other economic objectives.

Low Inflation, Rising Reserves Could Justify Further Easing To Support Growth...

Low Inflationary Environment Unlikely To Last For Long
Vietnam - Headline Inflation, %
BMI, Vietnam Statistics

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