The State Bank of Vietnam (SBV), the country's central bank, is expected to keep its policy rate steady at 4.5% through 2024 despite risks from rising food and energy prices, HSBC said in a note.
Inflation has broadly remained in check, with headline inflation rising only 0.2% month-on-month, leading to a moderation in year-on-year inflation to 3.4% in November, the bank noted.
“For the State Bank of Vietnam, signs are positive as inflation looks controlled and the economic outlook, especially on the external front, is stabilizing to a degree,” HSBC commented.
However, that does not mean that upside risks to prices have dissipated. The most notable development in November is the first momentum rise in medical costs in four years as a result of the changes in national medical service pricing.
State utility Vietnam Electricity raised its power prices by 4.5% in November, which typically is reflected with a one-month lag in the consumer price index (CPI).
The SBV in mid-June conducted a fourth round of monetary policy easing to spur economic growth. As such, the bank cut the refinancing rate, discount rate and overnight inter-bank lending rate by 50 basis points. It also lowered the dong deposit rate cap for terms of one month to below six months to 4.75% from 5%.
HSBC in October backtracked on its earlier call of another 50 basis-point rate cut by the SBV this year as conditions that previously warranted the move had dissipated. The UK bank upgraded its 2023 average inflation forecast to 3.4% from 3.2% previously, still far below the government’s 4.5% ceiling.
Commercial banks in Vietnam, led by their state-controlled peers, have aggressively reduced deposit interest rates amid ample liquidity and lackluster credit demand.