HSBC expects operating interest rates to remain unchanged throughout 2024

HSBC expects the State Bank of Vietnam to keep the policy interest rate unchanged at 4.5% throughout 2024, as the bank forecasts inflation for the year at 3.4%, significantly lower than the new inflation target of 4-4.5%.

Export growth played a significant role in improving Vietnam's current account balance in 2023 - Photo: Dinh Hai

In its recently released report, HSBC stated that inflation remains a significant concern for Vietnam, with price pressures not yet fully resolved. The risk of increased inflation due to energy and food prices persists, particularly given Vietnam's sensitivity to these items due to their substantial weight in the inflation calculation basket.

Rising healthcare costs are also a key concern following Vietnam's continued nationwide adjustments to healthcare service prices after a four-year hiatus. While mindful of the risk of price increases, HSBC expects the State Bank of Vietnam to maintain its policy interest rate at 4.5% throughout 2024.

Previously, at a press conference on January 3rd, announcing the results of monetary policy management in 2023 and information on monetary policy orientation for the new year, the State Bank of Vietnam did not raise the issue of increasing interest rates in 2024.

In 2024, the State Bank of Vietnam granted a 15% credit growth limit to banks right from the beginning of the year. Deputy Governor Dao Minh Tu, presiding over the press conference, stated that granting this credit growth limit is expected to contribute to creating demand and boosting economic growth.

According to HSBC, the gradual recovery of external sectors is good news for Vietnam's current account balance, and in some ways helps protect the VND. After two consecutive years of current account deficits, Vietnam's current account balance is on track to return to a fairly large surplus. The current account surplus in 2023 is thanks to stable remittances, increased tourism revenue, and most importantly, improved trade conditions in the last six months of the year.

HSBC's current account calculations, based on the last four quarters, show a surplus of nearly 5% of GDP as of Q3 2023, equivalent to historically high levels since 2019. Given the significant improvement in the trade surplus in Q4 2023, this trend is likely to continue even more strongly.

HSBC believes that in 2024, a key policy focus for Vietnam will be the impact of a minimum corporate tax rate of 15%, in line with OECD international standards, on the prospects for attracting foreign direct investment (FDI) – an area where Vietnam has consistently outperformed other countries in recent years.

“While it is still too early to assess the impact, we believe it is manageable. Close monitoring is needed on how the additional tax revenue is managed, as well as any accompanying measures or incentives that may be implemented to offset the increased tax,” the HSBC report stated.

HSBC believes that Vietnam is recovering on track, with the potential to regain its 6% growth trajectory in 2024. As FDI inflows continue to boost production capacity, the manufacturing sector will show signs of recovery, creating opportunities for the export sector.

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