The United Overseas Bank (UOB) from Singapore said that the State Bank of Vietnam (SBV) may increase operating interest rate from 6.25 percent to 6.5 percent in the second half of 2019 in order to minimise the risk of financial instability.
According to UOB, the Gross Domestic Product (GDP) growth of Vietnam in 2018 was driven mainly by agriculture (3.8 percent), industry and construction (8.9 percent) and services (seven percent), particularly wholesale and retail, transportation, finance and banking, education and health. Production and Foreign Direct Investment (FDI) were still the factors that promote economic development. The sudden rise of FDI to 19.1 billion US dollars in 2018 contributed to keep the strong growth of the economy.
Manufacturing and processing sector attracted the most attention from foreign investors, reaching 16.6 billion US dollars, equivalent to 47 percent of the initial registered capital. Real estate sector ranked the second with 6.6 billion US dollars, equivalent to 18.5 percent; and retail sector ranked the third with 3.7 billion US dollars, equivalent to 10.3 percent. Meanwhile, production and exports increased by respective 13 percent and 13.8 percent in 2018.
In 2019, UOB forecasted Vietnam’s economy to increase by 6.7 percent, slightly down compared to the 7.08 percent in 2018.strong investment in transport infrastructure and energy remain the important growth drivers. Industrial production will be boosted by the continued expansion of multinational businesses in the sectors with high demand for manpower, exports, manufacturing and processing.
Nevertheless, the UOB stressed that the unfavourable weather conditions may negatively affect the production of agricultural production and mining. The prolonged US-China trade tension may also have big impact on Vietnam. Export activities are likely to be negatively affected if these two countries cut demand for imported products such as steel, equipment, phones, mobile phones and intermediate electrical components. The massive presence of cheap goods from China will also affect domestic industries. However, the level of influence will decrease slightly if Chinese multinational businesses shift their production activities to Vietnam. Factors such as the access to Southeast Asia market, favourable trade terms with the US, and young labour resources will create favourable conditions for Vietnam’s economic development.
Regarding monetary policy, according to the UOB, year 2019 will be the time for the SBV to gradually normalise monetary policy. “In the context when the economy is on the rise and able to meet higher interest rates, the SBV may gradually increase operating interest rate from 6.25 percent to 6.5 percent in the second half of 2019 to minimise the risk of financial instability, including the escalation of prices of real estate or other financial assets. Moreover, the interest rate increase may help maintain stable inflation in 2019″, UOB’s report evaluated.
