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Vietnam Monetary Policy May 2023

Vietnam: Central Bank cuts the benchmark refinancing rate by another 50 basis points in May

On 24 May, the State Bank of Vietnam (SBV) cut the benchmark refinancing rate from 5.50% to 5.00%. The move followed the Central Bank’s decision to cut the benchmark refinancing rate in March. At the same time, the Central Bank decided to cut the overnight lending rate in the inter-bank market to 5.50% from 6.00%, while it kept the discount rate unchanged at 3.50%.

Weaker-than-expected national accounts data for Q1 and ongoing economic weakness emerging from manufacturing and export data were behind the Bank’s decision to extend monetary policy easing. Additionally, earlier in the month, Parliament had reiterated calls for the SBV to deliver additional cuts to support the country’s 6.5% growth target for 2023.

In the accompanying statement, the Bank highlighted that cuts aim to, “help businesses and households have better access to credit”. Our panel expects the Bank to reduce rates further ahead this year, although the potential for higher risk aversion in global markets and volatile oil prices could prevent the Bank from delivering further cuts. Additionally, China’s recovery and the evolution of U.S. interest rates are key factors to watch.

Commenting on the release, Suan Teck Kin, head of research at UOB, stated:

“With the latest announcement matching fully our expectation of a total rate cut of 100 bps in Q3 2023, the scope for further rate reduction may be limited given considerations for domestic inflation as well as potential implications for the VND exchange rate. As such, we expect the SBV to approach additional rate cuts in a cautious and deliberate manner, with the refinancing rate staying at 5.0% at least through Q3 2023, if not longer.”

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