Vietnam Stock Market (ann. var. of HSX %)

Central Bank cuts the discount rate by 100 basis points in March

On 15 March, the State Bank of Vietnam (SBV) cut several interest rates, including lowering the discount rate from 4.50% to 3.50%. Meanwhile, the Bank kept the refinancing rate at 6.00%. The move was the first rate cut since October 2020, and took analysts by surprise.

The decision came amid the need to support growth and banking sector liquidity. February’s decline in price pressures, the SBV’s assessment that “inflation has been controlled” and a lower volatility of the dong so far in 2023 gave the Bank leeway to ease policy. The decision set the SBV apart from its regional peers, which have so far refrained from pivoting towards looser financial conditions.

Looking ahead, the likelihood of monetary tightening by the SBV in 2023 has probably diminished, as the recent bank failures in the U.S. will likely lead to a less hawkish Fed and increase concerns about global growth. On the flipside, a need to protect the dong in the face of risk-off sentiment in global markets could force the SBV to still keep a somewhat restrictive policy. There is a high degree of uncertainty, with much depending on whether concerns over financial stability blow over quickly, the level of U.S. interest rates, and the inflation trend in Vietnam.