The State Bank of Vietnam (SBV) will make every effort to not tighten the monetary policy immediately to support economic recovery and stabilise the market, according to analysts of the VNDirect Securities Company.

Under a newly released report, the analysts said if there is any increase of benchmark interest rate this year, it will likely take place in the fourth quarter of 2022 and the increase will be limited at around 0.25-0.5 percentage points.

According to the analysts, Viet Nam's higher-than-expected inflation may hinder the country’s economic growth and cause monetary policy to become tighter. Under the current context, the SBV has less room to maintain a loose monetary policy to support the economy.

However, the analysts believed the SBV will not tighten monetary policy. They explained 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.

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

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

VNDirect forecast the increase in deposit interest rates will slow down in the third quarter of 2022 because of low demand after many commercial banks temporarily used up all their credit growth quota. However, deposit interest rates may accelerate again in the fourth quarter of 2022 after the SBV expands credit growth quota for commercial banks.

They expected the deposit interest rate to increase by 0.3-0.5 percentage points in the second half of 2022, in which, the 12-month term deposit rate may increase to around 5.9-6.1 per cent per year on average by the end of 2022, still lower than the pre-pandemic level of about 7.0 per cent per year.

Regarding lending interest rates, 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.

Under the report, VNDirect reported the Vietnamese dong depreciated 1.6 per cent against the US dollar as the greenback hit a 20-year high.

However, VNDirect analysts saw a number of factors supporting the dong in the second half of 2022, including improving trade surplus (forecast to reach US$7.2 billion in 2022), balance surplus payments and rising foreign exchange reserves of $120-122 billion (equivalent to 3.9 months of imports).

The USD/VND exchange rate will fluctuate between VND22,900-23,300 per dollar by the end of 2022, an increase of no more than 2 per cent compared to the end of 2021, VNDirect forecast. — VNS