Vietnam interest rates forecast to inch down in H2 of 2017

Average interest rates will decrease slightly in the second half of this year, market research firm Market Intello forecast.

According to the firm, the continuous fall in inflation led the State Bank of Việt Nam (SBV) to decrease interest rates to stimulate credit activities, which led to a decrease in market interest rate.

However, the drop in interest rates in the last months of the year will be slight since credit growth rate has been significantly higher than the rate of capital mobilization recently, Market Intello said.

Market Intello also forecast that the Vietnamese đồng would depreciate slightly in the second half of 2017, explaining that the US Federal Reserve (FED) would not rush to raise the interest level since it lowered its expectations for the growth of the US economy. This means that the US dollar will maintain its current weak status against other currencies. In addition, SBV has begun to actively raise its reference exchange rate to deal with FED’s actions.

“Therefore, we believe that the đồng would slightly depreciate under the pressure of increasing imports in the domestic sector in the second half of the year,” it said.

Market Intello also expected that inflation would remain at a low level in the second half of 2017.

“Inflation has a tendency to increase in the third quarter under the pressure of the rising prices of public goods such as healthcare, education and electricity. The price of fresh food will recover after a deep reduction in the second quarter. However, inflation will decrease and stop at 2.3 per cent at the end of 2017.”

According to Market Intello, industrial production and the growth in services will continue to be the driving forces of the economy in the second half of 2017.

Steady growth in retail sales and the service sector, together with the prosperity of industrial production, is the reason to expect higher growth in the second half of the year compared with the first half.

Recovery in crude oil price enhances the prospect of producing one million tonnes of crude oil to support economic growth. Firstly, oil prices displayed signs of increasing above the level of US$50 per barrel thanks to the agreement of OPEC to cut oil output. Additionally, production in the mining sector showed signs of recovery in July. As a result, the prospect of producing more crude oil to boost economic growth in the second half of the year is enhanced.

However, the firms said keeping to the schedule of disbursement from the State budget is a challenge to the Vietnamese economy to improve economic growth. Basically, collaboration among the Government, industries and local authorities during the implementation of public investment plans was not strong enough.

The fact that the approval and inspecting process of investment plans were too slow would limit the effectiveness of short-term solutions to lift total investment capital to 35 per cent of the GDP in 2017, Market Intello said.

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