|
Vietnam rate may be on hold until 2010: Standard Chartered
Vietnam’s central bank may keep its benchmark interest rate unchanged until the middle of next year, Standard Chartered Plc said, revising a previous forecast of a cut by this month.
The UK-based bank had predicted in April that the State Bank of Vietnam would lower its key rate to 5 percent by the end of June. The rate has been unchanged at 7 percent since February, after being reduced from 14 percent in October 2008.
“Our long-held expectation of further base rate cuts seems increasingly unlikely,” Tai Hui, head of Southeast Asian economic research at Standard Chartered in Singapore, said in a note. “The uncertainty of the growth outlook and downside risks to the government’s growth target suggest that the best monetary policy option is to stay put for the rest of this year.”
A government interest-rate subsidy program has been “too successful,” driving loan growth at a pace that may boost bad debt, Fitch Ratings said last month. Domestic demand fueled by government spending is supporting growth, with retail sales “a strong point,” Hui said in Monday’s note.
Vietnam’s government is targeting 5 percent economic growth for the year, down from an earlier goal of 6.5 percent. Standard Chartered expects an expansion of 4.2 percent, while the International Monetary Fund foresees only 3.3 percent.
While the government and companies in the country are applying pressure to further cut the base rate to boost growth, the central bank wants the current level to be maintained to protect Vietnam’s “financial structure,” deputy governor Nguyen Van Binh told foreign banks at an April meeting, according to a summary of the meeting provided on Monday at a conference in Ho Chi Minh City.
‘Immediate priority’
“The immediate priority is to try to keep the base rate of 7 percent unchanged,” Binh was quoted in the summary as saying, in response to a request from banks to remove all lending caps on interest rates linked to the benchmark.
A weaker dong and a narrowing spread between lending and deposit rates point to higher interest rates, according to Fitch. Vietnam’s swing to a year-to-date trade deficit in May from a surplus in the four months to April has “sparked jitters on the currency,” HCMC-based fund manager Dragon Capital said in a note dated May 28.
“Given the improvement in domestic activity, we now see limited justification for interest rate cuts,” Hui wrote. “However, with the inflationary outlook benign for the rest of this year, there is no urgent need to raise the base rate either,” he wrote, forecasting that the rate would “start to rise in mid-2010.”
Weaker exports
While a recent increase by the Ho Chi Minh Stock Exchange’s VN-Index is creating concern that some of this year’s loan growth may be going into the equity market, “the base rate is too blunt an instrument to direct where lending goes,” Hui wrote.
Higher interest rates now may also hurt exporters, he said. Vietnamese exports fell 7 percent in the year through May compared with the same period a year earlier, according to preliminary estimates by the General Statistics Office in Hanoi.
Vietnamese monetary authorities prefer to use “fiscal rather than monetary tools as a policy instrument to support the economy,” DWS Vietnam Fund Ltd. said in a note last week.
A transaction is conducted at a Hanoi-based branch of Bao Viet Bank, an affiliate of Bao Viet Finance-Insurance Group
thanhnien, Bloomberg
|
