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Vietnam Monetary Policy September 2022

Vietnam: Central Bank hikes rates for the first time since 2011

On 22 September, the State Bank of Vietnam (SBV) increased a host of interest rates, including hiking the refinancing rate from 4.00% to 5.00%. It was the first change in policy since September 2020 and the first hike since November 2011. The decision followed the Fed’s recent hikes and those of other central banks in the region.

The move came amid the need to support the currency—the Vietnamese dong is at its weakest since at least 1993—and to ensure inflation remains below the government’s 4.0% target. Meanwhile, strong economic momentum provided the leeway for the Bank to hike.

Looking ahead, the SBV is likely to continue its policy tightening for the remainder of 2022 and in 2023, in line with the global monetary tightening cycle. The Central Bank’s September hike is likely a sign that the Bank will put more focus on interest rate adjustments as a monetary policy too going forward, as opposed to other policy instruments like open market operations.

On the decision, analysts from the EIU commented:

“Consumer price inflation in Vietnam has been successfully contained by fiscal measures, so the increase in the policy rate clearly reflects growing concerns about capital flows and the implications for maintaining the dong exchange rate.”

On the outlook, UOB’s Suan Teck Kin said:

“SBV is likely to continue to increase its key interest rates in the quarters ahead, bringing the interest rates back to pre-pandemic levels. After the 100bps hike in the latest round, SBV is expected to pace the tightening process by raising 50bps instead each time in 4Q22 and 1Q23, especially if incoming data are favourable.”

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