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The SBV may continue to cut policy interest rates if GDP growth is negative in the third quarter


In the industry outlook report for the last months of the year just released, Viet Dragon Securities Corporation of the opinion that the economic outlook for the second half of 2021 depends on the effectiveness of disease prevention and control and vaccination progress. The strict restrictive measures applied in August 2021, accelerating vaccination progress in Ho Chi Minh City will be a premise for the Government to take steps to prepare for the easing of social distancing measures in the fourth quarter of 2021.

In the third quarter of 2021, household consumption and service sectors are likely to experience negative growth. In the fourth quarter of 2021, without stronger policy support, the economic recovery will be weak due to the aftershocks from the pandemic on the labor market, supply chains, business and household balance sheets.

VDSC predicts that inflation will be higher in the second half of 2021 due to reasons such as: An increase in petrol prices may push inflation higher because the petrol price stabilization fund tool gradually loses its effectiveness in the context of the sharp increase in world gasoline prices. Supply chain disruptions due to Covid-19 prevention and control measures are likely to add to inflationary pressures in the short term.

Regarding monetary policy, VDSC expects credit growth to slow down due to the latest Covid-19 wave. Slow money supply growth in the first 6 months shows that the State Bank did not use liquidity injection on a large scale and still focused on selective credit growth.

Monetary policy is expected to continue to lean towards the support direction due to the complicated developments of the pandemic. However, the State Bank can keep a cautious attitude in the context of rising inflation again. If the economy records negative GDP growth in the third quarter of 2021, the State Bank may continue to cut operating interest rates.

As for fiscal policy, fiscal spending in the first seven months of 2021 has been pursued in a prudent manner, reaching only 48.0% of the budget plan, while the economic recovery in the first half of 2021 has boosted state budget revenue to reach 67.9% of the full year budget plan. This has helped the fiscal balance to have a surplus of VND 101.5 trillion in the first seven months of 2021 compared to a deficit of VND 75.7 trillion in the first seven months of 2020.


Kylie Nguyen

© 2019 Vietnam Bank for Agriculture and Rural Development No. 2 Lang Ha street, Ba Dinh district, Hanoi, Vietnam
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