Responding quickly and operating flexibly, the State Bank has reduced interest rates four times in a row, a total of 150 basis points in the first six months of 2023.

KIS Vietnam Securities believes that the State Bank (SBV) may have another interest rate cut this year depending on the Fed's actions and developments in domestic interest rates.

The owl creates a bottom.

KIS Vietnam Securities Joint Stock Company (KIS Vietnam Securities) has just reported updating the stock market outlook for the fourth quarter of 2023 with the opinion that the State Bank (SBV) may have another interest rate reduction in the coming months this year.

In this report, KIS said that Vietnam's economy has faced many significant difficulties, bottoming out in the first quarter of 2023 with a GDP growth rate of only 3.28%.

However, Vietnam's growth has shown signs of improvement in the second quarter of 2023 and the third quarter of 2023, with speeds reaching 4.14% and 5.35%, respectively.

The analysis team points out that, with the growth rate in the third quarter, Vietnam can achieve 6.5% growth in 2023 according to the government's target, which is "very difficult".

However, according to KIS Securities, the positive recovery from the first quarter of 2023 is an expected sign, showing the potential for economic growth from 2024-2025.

Statistics from Bloomberg forecast GDP growth rates for 2023, 2024 and 2025 at 5%, 6.4% and 6.7% respectively. Furthermore, most major economic indicators have also shown significant improvement.

The report states that public investment activities will continue to be promoted to support the economy in 2023. KIS estimates that the amount of investment capital from the State budget in the first 9 months of the year is estimated at 415 trillion VND, equivalent to meeting 57.4% of the plan and increasing 23.5% over the same period.

Accordingly, notable projects include the North-South Expressway, Long Thanh Airport, and many others.

Also read: Vietnam’s central bank cuts interest rates » Vietnam News - Latest Updates and World Insights | Vietreader.com

Could the State Bank have another interest rate cut?

Regarding monetary policy management, since the beginning of 2023, as Sputnik also stated, the State Bank of Vietnam has implemented a more flexible monetary policy.

According to KIS Securities, this flexible management is also shown through 3 times adjusting the deposit interest rate.

In particular, Vietnam's inflation is still contained, with the inflation rate in September recorded at 3.66%, lower than the government's target of 4.5%.

However, according to KIS Securities, this will have to be carefully considered before deciding, especially when interest rates are reduced due to fluctuations in the foreign exchange market.

Since April 2023, the exchange rate (USD/VND) has shown an upward trend, increasing by about 4% compared to the lowest level in April.

In September, the exchange rate also recorded a new peak of the year due to interest rate increases by the US Federal Reserve (Fed).

In addition, domestic interest rates also tend to increase again. These factors may affect the State Bank's decision to increase interest rates.

The State Bank should consider this carefully.

It is worth recalling that, in the context of the still difficult economic situation, the State Bank of Vietnam responded quickly by cutting refinancing interest rates by 150 basis points in the first six months of 2023, to 4.50% remaining.

In a newly published report, UOB bank said they still see Vietnam having the prospect of cutting interest rates by another 100 basis points (to 3.50%), but the implementation time could be moved to the next quarter. April 2023.

At the same time, UOB noted that the State Bank needs to pay attention and consider when considering the balance of both growth and inflation risks.

Similarly, according to the World Bank's October 2023 East Asia and Pacific Economic Update Report, the WB stated that continued loosening monetary policy is appropriate for Vietnam's economic context. Male.

However, according to the WB, Vietnam should be careful with continuing to aggressively cut interest rates because it could increase interest rate differences with global markets, potentially putting pressure on exchange rates.

Also read: Monetary policy for growth » Vietnam News - Latest Updates and World Insights | Vietreader.com

Vietnam should maintain measures to increase banks' capital ratios and strengthen the banking supervision framework to mitigate rising financial risks. According to the World Bank, this is a way to ensure the stability and resilience of the financial sector.

The International Monetary Fund (IMF) resident representative also recently assessed that loosening monetary policy is important in boosting the economy in the first half of this year, but there is little room for further loosening. The State Bank must carefully consider lowering interest rates because the room is almost empty.

In the report "Vietnam At A Glance: Light at the End of the Tunnel" published by HSBC, HSBC Global Research removed the previous prediction of the final operating interest rate cut by 0.5 percentage points due to Pressure from exchange rates and inflation.

Although HSBC does not expect recent developments to push average inflation above the State Bank's ceiling of 4.5%, this "dangerous situation" poses significantly increased risks, according to the analysis team.

"We have adjusted our quarterly inflation forecast and slightly raised our average inflation forecast to 3.4% (previously: 3.2%) for 2023. Therefore, we no longer expect the Bank to The State will cut interest rates this year. In our view, the conditions that previously warranted a further 50 basis point rate cut are no longer present: the recovery is underway while inflation and foreign currency pressures are rising.", an HSBC representative said.

HSBC Bank expects the State Bank to keep the policy interest rate stable at 4.5% until 2024 unless there are external shocks. However, HSBC does not expect the same thing to happen again in October 2022, when the continuous increase in the USD/VND exchange rate forced the State Bank to increase interest rates aggressively.

The reason is that Vietnam's macroeconomic conditions have improved. For example, Vietnam's current account surplus has almost returned to its previous peak of nearly 5% of GDP, supported by a strong trade surplus, abundant remittances and rising tourism revenues. SBV in operating work.

As Sputnik reported recently, Mr. Frederic Neumannlanh, Chief Economist of HSBC's Asia Economic Research Division, expected that the State Bank of Vietnam would reduce interest rates by another 50 basis points, contributing to economic recovery to 6.3% by 2024.

According to HSBC Bank, exports and domestic spending recovery will be the main driving forces to help Vietnam's GDP reach 6.3% in 2024. According to HSBC, the second driving force for Vietnam's economy next year is domestic spending, including consumption and government purchases, which is forecast to increase.