UOB: Operating interest rates will be stable, VND may recover slightly

ANTD.VN - UOB Bank forecasts Vietnam's economic growth prospects positively in 2024, with GDP growth at 6.0%. Instead of continuing to lower interest rates, monetary policy has shifted its focus to non-interest rate measures to support the economy.

The economy is recovering on the right track.

UOB Bank has just released the Vietnam Economic Growth Forecast Report for the first quarter of 2024. Accordingly, the report stated that despite a difficult year, Vietnam's GDP in 2023 still achieved a growth rate of 5.05%. In particular, the resistance came from the first 6 months of 2023, which limited the performance of the whole year.

UOB also said that aggregate data from January to February 2024 shows that the recovery momentum is on track.

Vietnam’s exports and industrial production fell sharply in February, according to the latest figures released by the General Statistics Office. In February, exports fell 5% year-on-year and industrial production fell 6.8% year-on-year, compared to increases of 42% and 18.3% respectively in January. The sharp decline was largely due to the Lunar New Year, which falls in February this year but took place in January last year.

For a more precise comparison, aggregate data from January to February shows exports rising 17.6% year-on-year in 2023, while industrial production increased 5.7% compared to an average of -2.2% in the January-February 2023 period.

Vietnam's Purchasing Managers' Index (PMI) showed both January and February 2024 readings above 50, compared with an average of 49.3 in January and February 2023.

“These data suggest that the overall momentum in manufacturing and external trade is showing positive signs and we expect this pace to be sustained, especially in the second half of 2024 as the recovery in the semiconductor sector becomes more solid and global central banks begin to operate more accommodative interest rate policies,” the UOB report said.

Ngân hàng UOB dự báo tích cực về triển vọng tăng trưởng kinh tế của Việt Nam

UOB Bank forecasts positively on Vietnam's economic growth prospects

While risks from external events continue to weigh on the global economic outlook (including conflicts in Eastern Europe and the Middle East), Vietnam’s outlook is bolstered by a recovery in the semiconductor industry, steady growth in China and the region, and supply chain shifts in Vietnam and ASEAN’s favor.

“We maintain our growth forecast for Vietnam at 6.0% for 2024, within the official target of 6.0-6.5%. In 1Q24, we expect GDP growth to slow to 5.5% y/y due to the impact of the Lunar New Year holiday (vs. 3.3% in 1Q23). We expect inflationary pressures to remain elevated, with headline CPI forecast to rise to 3.8% in 2024, from 3.25% in 2023,” UOB forecast.

Operating interest rates will be stable, VND may recover slightly

On monetary policy, UOB said the State Bank of Vietnam (SBV) responded quickly to the economic downturn early last year by cutting interest rates quickly. The last policy rate cut was in June 2023, when the refinancing rate was cut by a total of 150 basis points to 4.50%.

With economic activity recovering, the likelihood of further rate cuts has diminished. The bank believes that the SBV will keep the refinancing rate at the current level of 4.50%.

Instead of continuing to lower interest rates, the Government has shifted its focus to non-interest rate measures to support the economy. One of these is to deliver credit to borrowers (i.e. quantitative measures).

In 2023, bank credit growth will reach about 13.5% year-on-year, slightly lower than the 14-15% target set for the year, as regulators require banks to simplify lending procedures and improve businesses' access to bank loans.

For 2024, the SBV aims to boost credit growth to about 15% with the ability to flexibly adjust based on economic developments during the year.

The USD/VND exchange rate traded to a new high of 24,700 in late February, along with a significant strengthening of the USD against Asian currencies. Despite the short-term weakness of the VND, expectations of stronger GDP growth in Vietnam (2024 forecast at 6.0% compared to 5.05% in 2023) and a recovery in manufacturing and foreign trade are positive factors that could help stabilize the VND.

UOB also believes that a further recovery in the CNY – which the VND often follows – coupled with a weakening USD ahead of the Fed’s rate cut in June will bring a mild recovery for the VND.

“Our updated forecast for USD/VND is 24,400 in 2Q24, 24,200 in 3Q24, 24,000 in 4Q24 and 23,800 in 1Q25” – UOB expert forecast.

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