Loose monetary policy forecast to continue despite inflation pressure

Headquarters of the State Bank of Viet Nam (SBV). The SBV is expected not to raise this interest rate within the next 3-6 months to support the recovery of the economy. - Photo sbv.gov.vn

Under a newly released report, analysts from VNDirect Securities Company provided some reasons for their forecast.

Firstly, they said, although inflationary pressure is expected to increase in the coming months, the average consumer price index in the first half of 2022 is forecast to rise by 2.5 per cent year-on-year, still much lower than the cap of 4 per cent targeted by the Government for 2022.

Second, domestic demand is still relatively weak and has not fully recovered to a normal level as before the pandemic.

Finally, the SBV is still prioritising the goal of maintaining low lending rates to support businesses and the economy to recover after the pandemic.

Therefore, despite not expecting the SBV to further cut its key policy interest rates, the analysts believed the SBV would not raise this interest rate within the next 3-6 months to support the recovery of the economy.

"We expect the SBV to support the market through open market activities, such as injecting liquidity in Vietnamese dong, buying foreign exchange or raising the credit growth limits for commercial banks," they said in the report.

The analysts forecast credit growth will increase by 14 per cent in 2022, with priority on production and service sectors such as industry, import and export, agriculture, forestry and fisheries. In addition, the SBV will strictly control credit flows into high-risk areas such as real estate, securities and BOT (Build-Operate-Transfer) projects.

Regarding lending interest rates, VNDirect reported the SBV is implementing an interest rate incentive package worth VND3 trillion for COVID-19 hit enterprises.

In addition, the Government has planned to expand the scale of the package to VND40 trillion, focusing on small- and medium-sized enterprises; enterprises participating in a number of key projects; and enterprises in tourism, aviation and transportation industries.

VNDirect expects the interest rate incentive package can help reduce the average lending interest rate by 20-40 basis points in 2022. However, it noted, the actual impact of the interest rate cut from the package on enterprises and the economy could be lower if commercial banks increase lending rates on other conventional loans to offset the increase in deposit interest rates.