Standard Chartered forecasts interest rates to return to pandemic levels

Standard Chartered Bank forecasts Vietnam’s second quarter GDP growth to have slowed to 1.5% year-on-year (from 3.3% in the first quarter), posing downside risks to its 6.5% growth forecast for 2023. However, a rebound is expected in the second half of the year.

This information was released in the bank’s recent global research report titled “Vietnam Macro: Slower second quarter GDP to justify more rate cuts”.

According to the international bank, June macro data will likely continue to improve slightly from May but remain relatively weak as a still-deep contraction in trade leads to slower manufacturing and economic activity.

Recent nationwide blackouts are likely to have weighed on economic activity. Exports are predicted to fall 5.2% year-on-year in June, imports to fall 17%, and industrial production growth to edge up to 1.2%.

The trade surplus is likely to rise to US$4.1 billion from US$2.2 billion in May. Inflation may ease further to 2.2% year-on-year (from 2.4%); the bank sees still-robust retail sales growth of 12.2% year-on-year. Disbursed FDI declined 0.8% year-on-year to US$7.6 billion; pledged FDI fell 7.3% to US$10.9 billion.

Standard Chartered forecasts the State Bank of Vietnam (SBV) will cut the benchmark refinancing rate by another 50 basis points (bps) to 4% in the third quarter (the same level as during the pandemic years) and stay on hold until end-2025. The SBV cut the rate to 4.5% from 5% on June 16; that followed two earlier 50bps cuts in March and May.

Tim Leelahaphan, economist for Thailand and Vietnam, Standard Chartered Bank, said, “We think the SBV is currently focused more on growth amid easing price pressure. While it is reversing the monetary tightening implemented last year, lingering concerns about inflation and financial instability should prevent additional rate cuts beyond the 50bps we currently expect.”

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