Morgan Stanley comments on SBV’s new moves

The US banking group, Morgan Stanley, has provided immediate comments on the new decisions by the State Bank of Vietnam (SBV) to slash interest rates, which it sees as a move that will loosen the monetary policies.

External factors worsening

First, the risks for Vietnam’s economic growth from internal factors, but rather from external ones.

Morgan Stanley forecast that the current financial crisis may drive the global economy into a prolonged recession, and that the global economy may grow by only 2.5% in 2009, which is much lower than the 3.8% rate in 2008.

As Vietnam cannot be totally safe from the financial crisis, Morgan Stanley believes that the central bank of Vietnam would lean towards the ‘defensive easing’ policy instead of ‘offensive tightening’

Internal factors positive

Second, Vietnam’s macroeconomy has shown positive signs, leading to the State Bank’s decision to loosen the monetary policies.

The two biggest problems that forced the central bank to apply tightened monetary policies in the past, the high inflation and high trade deficit, have gradually settled. Vietnam’s consumer price index (CPI) rose by only 0.18% in September, the lowest monthly increase since the beginning of the year. The inflation rate is expected to be lower in the coming months as the result of the petrol price decreases.

The trade deficit in September decreased to 7.5% of the GDP, while it was 53.5% in March.

While the currencies in Asia are devaluating due to the stronger dollar, the VND/US$ exchange rate prove to be stable.

As such, Morgan Stanley’s experts believe that the worsening external factors were the main reason that forced the State Bank of Vietnam to slash the basic interest rate sooner than previously planned.

The report said that the State Bank of Vietnam is likely to further loosen the monetary policies, but with cautious steps, instead of the quick and sharp way the US FED has done.

VNN

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