Vietnam central bank effectively manages interest rates: ADB

The State Bank of Vietnam (SBV) has been effectively managing interest rates after cutting them four times this year, going against the global trend of rate hikes, according to the Asian Development Bank (ADB).

ADB principal country economist Nguyen Ba Hung and newly-appointed country director Shantanu Chakraborty made the statement in reply to queries from The Investor at a press conference on Wednesday in Hanoi, focusing on Vietnam's economic outlook for 2023-2024.

Chakraborty said the SBV's moves and the accomodative monetary policy had been productive. Going against the global trend of increasing interest rates, the central bank's interest rate cuts have been acting as the key to the country's economic resilience.

Elaborating on the issue, Nguyen Ba Hung said economies need to set interest rates in line with inflation. "Thanks to Vietnam's low inflation, the country has been able to reduce rates."

However, the room for reducing interest rates has scaled down as the regulatory interest rate has reached 4.5%, while inflation is expected to inch up to 4%, Hung added, expecting the central bank to continue effectively managing rates.

Reviewing Vietnam's attractiveness for foreign direct investment, Shantanu Chakraborty noted that Vietnam's advantages include low production costs and a strong workforce. The country will have to continue upgrading itself to remain a favored destination for FDI, such as improving the business environment with better clarity, developing the infrastructure, boosting the public investment, Hung noted.

Vietnam should also enhance links between domestic firms and the FDI sector to continue the country's growth amid the global trend of "reshoring", he added.

In the September edition of the Asian Development Outlook (ADO), the ADB revised down Vietnam’s economic growth forecast to 5.8% in 2023 and 6% in 2024. The figures were down from 6.5% and 6.8%, respectively, from the April edition.

Vietnam’s projected GDP growth in 2023 is the highest in Southeast Asia, followed by the Philippines with 5.7%, and Cambodia with 5.3%. The country's anticipated economic expansion in 2024 is among the highest, only behind the Philippines with 6.2% and on a par with Cambodia at 6%. Overall, Southeast Asia’s growth has been revised down to 4.6% in 2023 and 4.8% in 2024, from 4.7% and 5%, respectively.

Regarding inflation, Vietnam’s figures have also been revised down to 3.8% in 2023 and 4% in 2024, from 4.5% and 4.2%, respectively. Vietnam’s 2023 figure is lower than Southeast Asia’s average of 4.2%, but the 2024 figure is higher than the regional average of 3.3%.