On the morning of April 4, the Asian Development Bank (ADB) held a press conference on the forecast of Vietnam's economic development.

ADB emphasized that Vietnam's economy recovered impressively in 2022, thanks to the support of exports, strong foreign direct investment and the recovery of domestic consumption. However, the pandemic has exposed structural problems, and these are also the main risks to the economy.

ADB experts forecast Vietnam's economy to grow 6.5% in 2023 and 6.8% in 2024. In addition, inflation is expected to increase.

According to ADB, the unexpected reduction in policy interest rates makes Vietnam the first economy in Southeast Asia to loosen monetary policy.

ADB assesses that the State Bank of Vietnam (SBV) has acted because the stress in the capital market has tightened credit for real estate and affected investor confidence. Meanwhile, mild inflation and recent banking unrest in the US are expected to prompt the US Federal Reserve (Fed) to ease its hawkish monetary tightening policy, thereby potentially reducing inflation due to external costs.

At the same time, the pressure to maintain economic growth in Vietnam increased, as the global economy stalled.

ADB believes that these factors led the Government on March 7 to direct the SBV to take action to support liquidity and economic recovery. The State Bank of Vietnam as of the end of March 14 announced a 1% reduction in policy interest rates. The adjustment of the policy interest rate at that time did not apply to the deposit rate ceiling.

Then half a month, as of the end of March 31, this agency announced to reduce the ceiling interest rate for deposits under 6 months to 5.5% a year; refinancing interest rate reduced from 6% to 5.5%. The decision took effect from April 3.

Recently, UOB Global Economics & Markets Research also of the opinion that it is likely that the SBV will be more inclined to loosen policies in the coming period with the refinancing rate cut by 1 percentage point in the second quarter of this year (including the 0.5 percentage point reduction from April 3).

Kylie Nguyen