The Vietnamese central bank is expected not to take further monetary policy action for the rest of 2019.
The recent broad-based 25-basis-point (bps) rate cut by the Vietnamese central bank the first since July 2017 is seen as pre-emptive signaling, given Vietnam’s dependence on global demand to support its export-driven growth as uncertainties are dragging the global economy, a Standard Chartered Bank economist has said.
The near-term impact on credit growth and borrowing costs is likely to be minimal; domestic liquidity is flush and overnight borrowing costs are close to yearly lows, Edward Lee, Chief Economist, Asean and South Asia, Standard Chartered Bank, said at an annual global research briefing held by the bank in Ho Chi Minh city earlier this week.
State Bank of Vietnam (SBV) on September 13 announced a 25bps cut to benchmark interest rates namely refinancing, rediscount, overnight, and open market operation (OMO), with effect from September 16. The cut was made after a bunch of central banks all around the world had lowered interest rates to safeguard against global economic slowdown risks.
The SBV is expected not to take further monetary policy action for the rest of 2019, according to Edward Lee.
Hanoi-based Bao Viet Securities Company last week said the cut is deemed to have orientational and psychological effects, instead of major impacts on the financial market.
In his presentation, Lee forecast a moderate global growth of 3.4 percent in 2019, noting the three broad factors determining headwinds or tailwinds for global growth including US trade tensions with major partners, the policy outlook for major central banks, and oil prices. All three factors affect sentiment and economic activity, both investment and consumption.
Lee, however, is bullish about Vietnam’s outlook. Vietnam will be an Asean outperformer in 2019 with GDP growth projected at 6.9 percent and the rate is expected to sustain through 2021.
Nirukt Sapru, CEO Vietnam and Asean and South Asia Cluster Markets, said: “Slowing growth, lower-than-expected inflation and rising downside risks have caused central banks around the world to turn increasingly accommodative. There are also some geo-political risks to watch for.
Everyone is aware of the US-China Trade disputes and these are already affecting the global economy. Additionally, the recent tensions in the Middle East involving Saudi Arabia and Iran have been rising recently. Things look brighter in Asia, which we expect to lead global growth in the near future. All in all, it seems likely to be another positive year for Vietnam, so long as some key risks stay well-managed.”
