Vietnam Central Bank Seen to Shift to Tightening Mode in 2016: HSBC

14:19 | 14/12/2015 Finance - Banking

Vietnam’s inflation is expected to rebound from a record low 0.5% in 2015 to 3.1% year-on-year by end-H1 2016 and accelerate to 4.9% by end-2016, fueled by rising domestic demand.

Vietnam Central Bank Seen to Shift to Tightening Mode in 2016: HSBC

Motorbikers pass by the headquarters of the SBV (Photo: Internet)

The State Bank of Vietnam (SBV), the country’s central bank, will therefore have to shift to a tightening mode next year, HSBC has said in its latest flashnote titled “Coming soon: the return of twin deficits.”

The U.K. bank reiterated its forecast that the SBV would deliver the first 50-basis point hike in Q3 2016, bringing the OMO rate to 5.5%.

Current account deficits are likely to become more common place in the coming quarters, due to the outlook for stronger domestic demand.

“In 2016, we forecast the current account balance to slip into a deficit equivalent to 1.6% of GDP from an estimated 0.2% surplus in 2015 and a 5.1% surplus in 2014,” says Izumi Devalier, economist at HSBC.

The likely return of current account deficits in 2016 means that the balance of payments may remain under pressure in 2016 and into 2017. “Vietnam’s macro risks are limited for the time being; however, the SBV may choose to tighten monetary policy next year to maintain a sustainable growth path,” says the report.

HSBC forecast that Vietnam’s GDP to expand 6.9% in Q4 2015, taking the whole-year growth to 6.6%. The rate is predicted to rise to 6.7% in 2016./.