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DBS Group Research economist Chua Han Teng has raised the likelihood of the State Bank of Vietnam (SBV) adopting a more hawkish stance as inflation accelerates and remains above the central bank’s target. Vietnam’s inflation rate has surged to 4.3% year-on-year in July 2024, exceeding the SBV’s 4% target. The SBV previously maintained a dovish policy to support economic recovery post-pandemic, but persistent inflationary pressures may force a policy shift. The SBV’s next monetary policy meeting is scheduled for September 2024, where a rate hike could be announced.
For markets, a potential SBV rate hike would strengthen the Vietnamese dong (VND) against regional currencies and the US dollar. Emerging market currencies often react strongly to central bank policy shifts, especially in economies with high inflation. Traders should monitor the SBV’s inflation data releases and policy statements for clues about tightening measures. A tighter monetary policy could also impact Vietnam’s trade dynamics, affecting Gulf and MENA investors with exposure to Vietnamese exports.
The key implications for traders include heightened volatility in VND/USD and regional cross-currency pairs. Investors should also assess how a stronger VND might impact Vietnam’s export competitiveness. The SBV’s credibility in managing inflation will be critical. Markets will watch for follow-up data on consumer price indices and retail sales in August and September 2024 to gauge the central bank’s next steps.
