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Vietnam Monetary Policy May 2020

Vietnam: Central Bank cuts rates for second time this year in May

On 13 May, the State Bank of Vietnam (SBV) reduced a host of interest rates, with the refinancing rate being cut from 5.00% to 4.50%. The move came after sizeable monetary easing in March, bringing total cuts to the refinancing rate so far this year to 150 basis points.

The decision was aimed at supporting the flagging economy in light of recent discouraging economic data; in April, the manufacturing PMI, retail sales and exports fell sharply while visitor arrivals virtually ceased altogether. Low inflation, looser monetary stances by regional neighbors and a stable currency provided leeway for the SBV to cut rates.

The Bank sounded dovish, stating it will “proactively and flexibly implement the monetary policy solutions in order to control inflation, stabilize the macro-economy, ensure the liquidity and the operational safety of the credit institution system, and support economic growth”. As such, further cuts are possible in the near term, particularly if downside risks to growth materialize.

Analysts at UOB comment: “With downside risks and uncertainty to the domestic economy remaining ahead and inflation rate running well below target, the SBV has room to cut if necessary. However, it is likely to adopt a wait-and-see approach for now given that interest rates are already at or near a historic low.”

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