Vietnam’s headline inflation is forecast to rebound to 3.3% by the end of Q2 2016 and speed up to 5.2% by the year’s end, exceeding the government’s target ceiling of 5.0%, HSBC
has said in its latest update on the country’s economy.
The British bank says that the pick-up in economic activity is beginning to translate into a gradual rise in inflation pressures, with headline consumer price index (CPI) climbing 1.3% year-on-year in February from 0.8% in January.
Faster inflation was driven by an acceleration in food prices. “There is no doubt that food prices will remain on an uptrend, reflecting stronger domestic demand and supply-side pressures caused by El Nino related droughts in the central and southern regions,” the bank notes.
The bank’s analysts reiterated the forecast that the State Bank of Vietnam
(SBV), the country’s central bank, would switch to a tightening mode this year, delivering the first 50 basis point hike in Q3 2016.
HSBC also expects SBV to rein in credit growth if the expansion in lending volumes begins to routinely exceed the 18%-20% target for 2016. The agency is considering taking some measure to tighten lending for the real estate sector, where it sees nascent risks of overheating.
The bank notes in the report that Vietnam’s PMI remained in expansion in February despite a decline in comparison with January, indicating the country’s rising attractiveness as a manufacturing hub.
“We expect the [Vietnamese] economy to continue expanding at around 6.7%-6.8% over the next two years,” says the report.
The USD/VND rate is expected to reach 23,000 dong per dollar at the end of this year.