HSBC Projects Vietnam to Cut Key Rates by 2% in Q3

The Hongkong and Shanghai Banking Corporation (HSBC) forecasted that the State Bank of Vietnam (SBV) will likely cut key rates by 1% within this month and by another 2% in the third quarter of the year.

The central bank has recently cut rates for the third time in just two months; a move to boost weaker-than-expected economic expansion. Faster-than-expected decline in inflation prompt the monetary authority to slash rates faster, experts commented.

Successful implementation of tightening measures in 2011 has slowed inflation significantly with inflationary pressure easing from its peak of 23% in last August. Yet, economic growth was hurt, HSBC said.

The consumer price index, Vietnam's primary gauge of inflation, was estimated to have rose 8.34% in May from one year before, marking the first single-digit rise since October 2010. HSBC expected inflation to stay within single digit territory until the end of the year, believing that the pace of price gains will not likely to rise significantly in the next year due to sluggish demand.

Vietnam’s credit growth has fell sharply in early 2012 as lending rates were high, businesses lacked collaterals to access loans and domestic demand stayed low. Vietnam’s bank lending will likely reach 13% this year, HSBC noted.

HSBC maintained its forecast that the domestic currency, the dong, will depreciate to VND21,500 per US dollar by the end of the year.

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