ANTD.VN - Experts at Maybank Investment Bank (MSVN) believe that over-reliance on monetary policy easing could reveal instability in bad debt and the safety of the system in the coming years.
In its latest macroeconomic report, Maybank Investment Bank (MSVN) forecasts that headline inflation will rise slightly to +3.5% in 2024 and +3.4% in 2025 (compared to +3.3% in 2023). Inflation is expected to remain below the 4% target.
According to MSVN, prices will be supported by increased consumer demand, but will be controlled by a reduction in value-added tax (VAT) and other tax and fee reduction measures.
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MSVN expects the State Bank of Vietnam to maintain the current policy interest rate in 2024. |
The impact of the recent electricity price increase is expected to be modest, with each 10% increase in electricity prices only raising consumer prices by 0.33%. Vietnam Electricity Corporation (EVN) increased the average retail electricity price by +4.5% on November 9th, following a +3% increase on May 4th, 2023.
MSVN expects transportation inflation (accounting for 9.7% of the CPI basket) to be controlled due to stable oil prices.
However, the contribution of transportation to overall inflation is likely to increase in 2024, compared to a largely declining contribution in 2023. Although deflation in transportation from February to August 2023 dragged down the CPI, it shifted to an increase from September to November 2023 due to rising oil prices and a weakening comparison base.
Food inflation (accounting for 33.6% of the CPI basket) is expected to be controlled thanks to favorable supply conditions, even as higher demand supports prices.
Fiscal policy remains supportive, with strong infrastructure spending and some support measures extended into 2024. Ongoing projects include several segments of the $6 billion North-South Expressway and the $16 billion Long Thanh Airport. The government projects a budget deficit of VND 399 trillion ($16.4 billion) in 2024, equivalent to approximately 3.6% of GDP.
Fiscal space will remain at a reasonable level, with public debt projected to reach around 40% of GDP by the end of 2024, significantly lower than the 60% ceiling.
The 2 percentage point reduction in value-added tax (effective from June 2023) has been extended until June 2024. The 50% reduction in environmental protection tax on fuel will remain in effect until the end of 2024. Other tax and fee reductions remain in place, including reductions in export and import taxes to support domestic businesses.
Regarding monetary policy, MSVN expects the State Bank of Vietnam to maintain the policy interest rate in 2024.
“Policy interest rates have been reduced by more than 150 basis points in 2023 and are unlikely to be reduced further due to the recovering economy . Exchange rate pressures have also limited the State Bank of Vietnam's ability to implement deeper interest rate cuts, while the US Federal Reserve (Fed) is raising interest rates. We expect the Fed not to lower interest rates until Q3 2024,” the MSVN report stated.
MSVN also believes that the State Bank of Vietnam may not need to raise interest rates, as inflation is expected to remain below the 4% target and authorities are still concerned about the downturn in the real estate market.
However, risks include higher-than-expected inflation and a sharp decline in the VND to October-November 2022 levels, which could occur if the Fed becomes more hawkish than expected.
MSVN also noted that over-reliance on monetary policy easing could expose instability in terms of bad debt and system safety in the coming years. This suggests that the State Bank of Vietnam may bring interest rates back to normal when the situation stabilizes.
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