We expect the State Bank of Vietnam (SBV) to maintain its policy interest rates (the refinancing and discount rates) for the remainder of 2024, which have been steady at 4.50% and 3.00% since their previous cuts in mid-June 2023. Easing inflation and a stronger Vietnamese dong provide the SBV with greater flexibility to maintain its accommodative monetary policy stance to sustain the firm economic growth recovery amid disruptions by Typhoon Yagi.
Headline inflation continued to move further away from the SBV’s target of 4.5% in 2024, cooling to 2.6% YoY in September 2024 from the peak of 4.4% YoY in July 2024. Beyond favourable base effects, the moderation in September was due to the YoY decline in transport prices, slower education price increases, although food inflation rebounded. Imported inflation should be contained, with the Vietnamese dong appreciating against the US dollar (~2.0% stronger from the weak side of its trading band). We expect the dong to be supported as the US Fed looks on track to cut interest rates towards neutral into 2025. Vietnam’s real GDP growth accelerated to a two-year high of 7.4% YoY in 3Q24 from an upwardly revised 7.1% YoY in 2Q24. This was driven by stronger industrial and services expansion, although agriculture slowed due to damage from Typhoon Yagi. We raise our economic growth forecast for 2024 to 6.8% from 6.5% considering the robust first 3Q performance but possibility of a moderation in 4Q amid a higher base and temporarily softer sentiment/conditions from the weather disruptions. The government has said that achieving its latest 2024 growth target of 6.8-7.0% will be ‘a big challenge’, suggesting that the SBV would have an accommodative bias in its effort to attain this milestone.
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