VND to be stable; more rate cuts expected, says JPMorgan

June 06, 2012 | 08:53

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The USD/VND exchange rate will be stable this year and the State Bank of Vietnam (SBV) will likely cut policy rates by another 2-3 per cent in the next quarter on expected Q3 inflation of 5 per cent and full-year figure at 6-8 per cent, said JPMorgan Chase.

The consumer price index, Vietnam's primary gauge of inflation, was estimated to have rose 8.34 per cent in May from one year before, marking the first single-digit rise since October 2010. Year to date, the SBV has lowered benchmark rates by 3 per cent to spur spending.

JPMorgan projected that the local government would encourage commercial banks to lend more in the second half of the year to boost credit growth, which saw much contraction in the first five months.

In early this month, the Australia and New Zealand Banking Corporation (ANZ) also forecast that the central bank will slash interest rates by another 2 per cent and expected the next rate cut to come in late June or early July. ANZ said that the SBV will trim down refinancing rate from current 12 per cent to 11 per cent in June, to 10 per cent in September and uphold the rate until June/2013.

Vietnam’s balance of payment (BoP) has much improved thanks to narrower trade deficit and greater flows of remittances and foreign direct investment (FDI). Capital is flowing back into VND assets, JPMorgan commented, expecting the country’s forex reserve to rise on BoP surplus.

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