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Wealth Management

Rate cutting at the State Bank of Vietnam

The State Bank of Vietnam has decided to lower its benchmark rate by 100 basis points on March 15, from 4.5% to 3.5%. What are the consequences? Let Catherine Reichlin tell you more in her Bond Moment.


Hello everyone, today let’s look at a central bank that has just started cutting rate: the State Bank of Vietnam, the SBV.

The SBV has decided to lower its benchmark rate by 100 basis points (ie 1%) on March 15, from 4.5% to 3.5%.

And that even though it was already benefiting from extremely low rates compared to other emerging and even developed countries.

The SBV is the first Asian bank to cut rates and it was also one of the last countries to raise its benchmark rate. It did two consecutive 100 basis points increases last September and October.

The turnaround is therefore rapid and reflects the change in the central bank's preoccupation: the fight against inflation is now under control, the focus must be on growth.

And even though inflation only fell once in February after six months of continuous increases, the SBV considers that it is "under control". So it is the decline in domestic and international demand that has prevailed. The "weak global demand" directly impacts Vietnam's exports but not only.

Industrial production has also dropped and when we know that the country is among the favorites of Chinese and American companies that outsource, the stakes are high.

In this context, companies are asking for less credit, and SBV's objective is clear: to reduce the cost of financing for local banks so that they can pass it on and make their loans more attractive.

The liquidity should also provide relief to the market, where some sectors, such as real estate, are in a credit crunch.

The reopening of China is the only ray of light as tourism is a major source of income for the country. But this will not be enough in the immediate future and returning to 2019 levels will take time.

The yield on the Vietnamese 10-year has fallen by 20bps to 4.20% since the decision, while the 2-year has remained stable at 4%, although it was at 5% at the beginning of the year.

Vietnam has been among the world's fastest growing economies for several years: last year it grew by 8% and is expected to reach 6% this year according to the World Bank.

The Central Bank of Vietnam is taking the objective seriously and is putting the odds on its side, it has clearly chosen its priorities, even if it means getting ahead of its rate curve.

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