Standard Chartered: Vietnamese inflation rate likely to exceed 4%
Along with maintaining the nation’s GDP growth forecast at 6.7% for this year and 7% in 2023, Standard Chartered projects that this year's inflation will exceed 4%, a figure higher than the target set by the National Assembly.
This projection comes in the global macroeconomic report titled “Global Focus – Economic Outlook Q3-2022: Near the tipping point” which was recently released by the bank.
Tim Leelahaphan, an economist for Thailand and Vietnam at Standard Chartered, highlighted the country’s economic recovery as macroeconomic indicators continued to rebound in June, adding that the recovery may accelerate markedly in the second half of the year after reopening to tourism activities following two years of closure due to COVID-19.
The economist, however, pointed out that the global rising oil prices could exert a negative impact on the national economy.
According to Standard Chartered experts, the Vietnamese inflation rate is projected to be at 4.2% and 5.5% in 2022 and 2023, respectively, far higher than the figure of 1.84% recorded last year.
They assessed that rising food and fuel prices are likely to escalate in the second half of the year and early next year, a factor which will pose risks to the recovery of domestic consumption.
Furthermore, rising inflation will force people to seek safer and profitable investment channels, whilst potentially increasing the risk of financial instability.
Standard Chartered anticipates that the State Bank of Vietnam (SBV) will keep the policy rate on hold at 4.0% for this year and policy normalisation will take place in Q4 of 2023, with a 50 basic points (bps) hike to 4.5%.
Leelahaphan therefore advised that SBV must stay vigilant against inflation and financial instability, particularly amid ongoing geopolitical risks, hoping that it stays accommodative this year to support businesses.
SBV has not signaled a change in its stance yet, whilst the country’s economic recovery has just started, he said. He added that there is a risk that the SBV may raise rates earlier than expected, given rising inflation and a weaker-than-expected VND, especially if the Fed maintains a relatively hawkish stance.
The UK-backed bank raises its US$-VND forecasts to account for pressure placed on the goods trade balance from elevated commodity prices, with US$-VND projected at 23,000 at the end of Q3 and 22,800 at end-Q4. In line with this, the bank expects sharp VND appreciation next year, along with a likely rebound in the nation’s current account (C/A) surplus.
