The State Bank of Vietnam (SBV) is expected to hike the policy rate from 6.25% to 6.5% during the second half of 2019 as it would be time for the bank to normalize monetary policy gradually to prevent overheating, Singapore-based UOB has said in a note.
The SBV's headquarters in central Hanoi. Photo: Minh Tuan
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Moreover, gradually reducing accommodative monetary policy could help dwindle inflationary pressure and keep headline inflation to remain stable in 2019,” the bank said in a note titled “Vietnam: Moving towards robust growth in 2019” released Thursday.
After growing 7.1% in 2018, the Vietnamese economy is expected to expand 6.7% in 2019, which is, UOB says, robust. High transport and energy infrastructure investments remain important growth drivers. Industrial production will be boosted by continued opening of new multinational enterprises in labor-intensive, export-oriented manufacturing and processing industries.
However, unfavorable weather conditions could undermine agricultural output and mining production, the bank noted.
UOB analysts pointed out the US-China trade dispute could also have a spill-over impact on Vietnam. The exports are likely to suffer if these two countries reduce their demand for imported goods such as steel, machine parts, telephones, mobile phones and parts, and intermediate electrical components.
A flood of cheap Chinese products may also affect local industries. Nonetheless, these can be mitigated if Chinese multinational firms relocate their manufacturing to Vietnam. Its geographical proximity to China, market access to ASEAN, favorable trade terms with the US, and young labor pool stand Vietnam in good stead.
Standard Chartered Bank on January 16 forecast Vietnam’s economy to grow at a steady 6.9% in 2019, supported by FDI-driven manufacturing and stronger domestic activity. While the World Bank in December 2018 forecast the growth to decelerate to 6.6% in 2019 and 6.5% in 2020.
