Inflation is muted at 0.9% year-on-year in March even after the Government raised the average electricity tariffs by 7.5%. Even as price pressures are expected to pick up gradually in the second half this year, HSBC expected the consumer price index (CPI) to be well within the central bank’s target of less than 5%.
The OMO rate is currently 5% and there is scope for the central bank to lower rates marginally to support growth, the bank said.
In a macro economic report released on April 2, HSBC said the central bank is mindful of economic developments. The country is export dependent with shipments making up as much as 81% of gross domestic product (GDP) in 2014.
Tourism is important as well. The appreciation of the real effect exchange rate (REER) is taking a bite out of profits. On the other hand, the central bank has to consider its policy to reduce incentives to hold dollars and gold in the economy. Foreign-currency deposits have already declined from 21% in 2009 to 14% of GDP.
In a recent media conference, deputy central bank governor Nguyen Thi Hong said the central bank assessed possible impacts on imports and exports by adjusting the dong-U.S. dollar exchange rate and believed that it will be more beneficial to keep the dong rate unchanged at this stage. The central bank said that it would not devaluate the dong more than 2% this year.
“We believe that the deterioration of domestic firms’ exports and the tourism sector will pose downside risks to the economy. Moreover, domestic demand was firm in the first quarter this year but the outlook remains fragile,” she said.
Should lending continue to grow rapidly, import demand will rise, causing the nation’s trade deficit to snowball. While reforms in the banking sector are slowly being implemented, rapid loan growth, especially in poor-performing sectors like real estate, is cause for concern. Credit as a share of GDP rose to 100% in 2014, up from 95% in 2012.
Another sector that is coming under pressure is tourism. Increased competition is taking a bite into Vietnam’s traditional foreign exchange earner.
Tourist arrivals dropped as much as 13.7% year-on-year in the first quarter. Part of the reason is the strength of the dong, which has appreciated on a REER basis.
Japanese, Europeans, and Australians all experienced weaker purchasing power in greenback terms, discouraging them from traveling.
Đăng ký: VietNam News