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Analysts predict Vietnamese interest rates of 7 pct next year
Vietnam will probably cut its benchmark interest rate to 7 percent by mid-2009 to maintain growth amid a worsening global economy, Deutsche Bank AG predicted last week.
The State Bank of Vietnam has reduced its key rate to 11 percent from 14 percent over the last five weeks, reversing a commitment to a “tight” monetary policy.
Consumer inflation slowed to a year-on-year rate of 24.2 percent in November from 26.7 percent in October – a steeper deceleration than expected, according to Deutsche.
With export growth and investment from overseas set to slow, strong domestic demand is needed to fuel economic growth that the government still says will reach 6.5 percent next year.
Lower interest rates in Vietnam may help revive lending for struggling industries such as construction, with steel companies warning of a sharp decline in sales.
“We expect the State Bank of Vietnam to deliver at least another 400 basis points in rate cuts over the next six months as external conditions deteriorate further and inflation continues to ease,” wrote Michael Spencer, Deutsche Bank’s Hong Kong-based chief Asian economist, in a note dated November 25.
The slowdown in inflation in November was broad-based, underpinned by a 4.9 percent month-on-month decline in construction prices that reflects a weak property market and poses a “serious source of concern” for Vietnam’s banking industry, Spencer wrote.
Rapid loan growth in Vietnam in recent years has been largely driven by banks’ extending credit to property developers, Fitch Ratings said in May.
Banking system risks
Lower interest rates may “reduce risks to the banking system,” Spencer said in the note. Germany-based Deutsche Bank warned in May that a declining property market in Vietnam had led to a “sharp increase” in nonperforming loans and would force some banks to seek additional capital.
State Bank of Vietnam Governor Nguyen Van Giau told the International Monetary Fund in October that inflation control was its top policy objective, citing economic growth that was “still at a high level compared with many other countries.”
Since Giau’s comments, the IMF warned that global economic prospects have deteriorated further to the worst projected output in three decades. The main focus of Vietnam’s government now is to boost economic growth, Standard Chartered said.
Inflation in Vietnam is slowing at an “incredible speed,” wrote Bill Stoops of fund managers Dragon Capital in Ho Chi Minh City, in a note sent to investors Sunday that predicted that the rate of year-on-year price increases may fall to single-digits by mid-2009.
“The year of monetary asphyxiation is clearly over,” Stoops said in his note.
Bloomberg
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