HSBC highlighted the SBV’s urgency to bolster growth via the credit channel. The rate reductions are set to continue easing financing costs for businesses and households, thus stimulating business investment and bolstering consumer sentiment, according to a report entitled ‘The State Bank of Vietnam: Third Time’s a Charm’.

Moreover, the SBV is predicted to effectuate one more 50 base point cut in the easing cycle in Q3 2023, to further support growth. This possible move could bring the policy rate to 4.0 per cent, mirroring the rate cuts during the pandemic and counteracting the tightening measures of 2022.

The bank’s recent actions underscore its ongoing optimism regarding inflation, which the report maintains is ‘under control’. The SBV’s optimism is substantiated by a cooling inflation rate, recently dipping below 3 per cent YoY, considerably under the 4.5 per cent ceiling. This trend has allowed HSBC to revise its 2023 inflation forecast down to 2.6 per cent from 4.0 per cent.

HSBC acknowledged 2023 as a challenging year for Vietnam’s economy. After a drastic growth deceleration to 3.3 per cent YoY in Q1, Vietnam continues to confront robust headwinds. Nevertheless, the bank anticipates a punchy recovery in Q4, warranting further monetary support.

However, HSBC experts warned that further cuts might not be necessary if growth bottoms out sooner than expected. Despite facing trade headwinds, Vietnam has shown resilience, with the dong remaining stable against the US dollar due to improved current account dynamics. HSBC projected Vietnam’s gross domestic product (GDP) growth to reach 5 per cent in 2023.

Fibre2Fashion News Desk (NB)