HA NOI — The State Bank of Viet Nam has more room to cut interest rates to help boost the economy now that inflation has been substantially reduced, according to a report issued by Standard Chartered.
"We expect the refinance rate to end 2012 at 9 per cent, down from the current 11 per cent, as the State Bank of Viet Nam aims to boost growth," the report said, predicting that the foreign exchange rate would also remain stable through the end of the year.
This should alleviate investor concerns about loan and credit access in the coming months and support domestic economic activity that has been weakened by global uncertainty, it said.
Standard Chartered also predicted that inflationary pressures would remain low this year, with inflation likely to pick up gradually only in the last quarter. The headline inflation rate fell to 6.9 per cent year-on-year last month, with easing food and energy prices likely to depress headline inflation further.
Food prices were expected to stay flat in the coming months after declining for three consecutive months, and overall inflation was likely to bottom out at around 5-6 per cent year-on-year before rising modestly again.
Viet Nam's improving trade balance has been a positive development this year, the report said, forecast that this trend would continue for the remainder of the year, although likely to moderate over the next few months.
"We forecast that Viet Nam's export growth will outperform the rest of the region but be a touch lower than in previous years," it said. "The positive trend in the trade balance is likely to boost forex reserves and support the Vietnamese dong."
Imports set to accelerate in the next few months due to rising demand for raw materials and crude oil. This was likely to cause a slight deterioration in the trade balance in the short term. Once the Dung Quat oil refinery resumed production and the Nghi Son oil refinery were completed, the trend seen in the first quarter would likely resume.
Lower borrowing costs in the coming months and the Government's growth-supportive stance should support a rebound in investment growth, the report said, predicting that public spending would make up a bigger share of overall investment this year as international investors exercised caution.
"We expect domestic demand and an improving trade balance to drive growth this year."
Standard Chartered also forecast that the economy would grow overall by 5 per cent this year, down from their previous forecast of 5.8 per cent. It expected growth to pick up as the year progressed. — VNS