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Pressure from VND depreciation and State Bank interest rate hike expectations

ACBS believes that the State Bank can raise the operating interest rate by 0.5 percentage points by the end of 2022 and by 1-2 percentage points in 2023. Interbank interest rates may increase by 0.5-1 percentage points in the last month of 2022.

Despite high inflation in the US, Vietnam's CPI is predicted by ACB Securities (ACBS) to rise between 3.2% and 4% in 2022 and fall within the government's target of 4%.

The analytical team anticipates that the indirect effects of higher gas prices and higher expenses for electricity, water, health care, and education in 2023 will put more pressure on inflation, and inflation in 2023 may rise as a result, reaching its peak at 4.5% (which is still within the government's 4.5% objective for 2023).

According to the updated report of ACB Securities (ACBS), it is also forecast that the liquidity of the banking system will remain at the current level to support VND from the State Bank (SBV). The main policy interest rate may also progressively rise by 0.5 percentage points by the end of 2022 and by 1-2 percentage points in 2023, according to experts. Therefore, it is expected that the interbank interest rate may increase. increase by 0.5-1 percentage point in the last month of 2022.

Besides, ACBS also expects the SBV will continue to maintain a positive interbank VND and USD interest rate differential to support the VND/USD exchange rate. Therefore, with the US Federal Reserve's (Fed) operating interest rates continuing to be higher and higher towards the end of the year, experts do not expect the SBV to lower interbank interest rates much in the coming months.

Source: ACBS

Regarding the exchange rate, ACBS believes that the devaluation pressure of VND in 2023 is expected to be low due to many reasons.

Firstly, the USD has weakened recently; and this trend may continue as the FED is expected to slow down the rate hike in 2023 and possibly stop raising interest rates in the second half of 2023;

Second, remittances to Ho Chi Minh City are expected to reach 6.8 billion USD in 2022 (up from 6.5 billion USD in 2021);

Third, disbursed FDI is expected to continue to grow strongly when FDI disbursement in the first 11 months of 2022 increased by 15.1% over the same period, reaching 19.7 billion USD;

Fourth, according to the Fed's economic prediction, the US GDP growth rate will continue to rise in 2023, rising by 0.5%. Therefore, Vietnam's export activities, are one of the sources of supply, major USD may remain positive in 2023, although growth may slow.

On Thursday, December 15, the SBV re-listed the USD buying rate (which is the rate at which the SBV buys USD from commercial banks), this move signals that the SBV will start buying back foreign currency from commercial banks with positive foreign currency status.

This is particularly useful information for the banking system's liquidity at the moment since, if the SBV purchases USD, it will immediately pump liquidity into the banking system, assisting in addressing the system's liquidity shortage.

Source: Vietnambiz

Data set of financial statements of 30 commercial banks in Vietnam


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