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HSBC expects inflation to average 3% in 2021, below the SBV’s 4% ceiling, allowing it to maintain its loose monetary policy.

HSBC Predicts Low Inflation Pressures in Vietnam Throughout 2021
Lately, HSBS released the report in which HSBC economists give out some predictions and comments on Vietnam’s GDP and monetary path.
While there are several upside risks, moderating food prices should keep Vietnam’s inflation under control
HSBC expects inflation to average 3% in 2021, below the SBV’s 4% ceiling, allowing it to maintain its loose monetary policy.
Despite export outperformance, a renewed COVID-19 wave is stalling domestic recovery; HSBC expects growth of 7% in 2021
Stable inflation should prevail
There has been increased market focus on inflation lately, and HSBC takes the opportunity to assess Vietnam’s inflation prospects. While inflation momentum rose by an eightyear-high pace in February, average inflation should remain stable. Food prices are moderating as pork prices normalise, likely more than offsetting the impact of higher oil prices. 
Meanwhile, demand-side inflation will recover, but likely grow at a slower pace given ongoing slack in the labour market.
Reduced FX concerns
In addition, a stable currency in recent years should alleviate concerns of high FX passthrough to CPI. HSBC expects USD-VND to be around 23,100 by the end of 2021. 
All things considered, HSBC expects Vietnam’s inflation to average around 3% in 2021, well below the State Bank of Vietnam’s (SBV) 4% ceiling. With inflation being less of a concern, the central bank has more room to keep its monetary policy unchanged throughout 2021.
Riding on tech
After smoothing out Tết distortions, Vietnam’s external sector continued to see impressive growth. This is largely due to the upswing in the global tech sector, which has consistently aided Vietnam with its speedy recovery. That said, a recent surge in COVID-19 cases, despite being largely under control now, is likely to slow domestic demand. As such, HSBC now expects 2021 GDP to grow 7%, largely reflecting a weakerthan-expected 1Q21 economy. 
Once Vietnam gets through this patch of stormy weather, it should regain its previous momentum. As global economic prospects improve, there are concerns about inflation volatility.
Coincidentally, Vietnam’s February month-on-month inflation momentum rose by an eight-yearhigh pace. As such, it is worth examining if Vietnam faces inflation risks in 2021, as this will entail important monetary implications. Despite having a relatively broad mandate (i.e. macroeconomic and FX stability) and an informal inflation-target monetary framework, HSBC still expect the SBV to look at inflation as a key indicator and react in a similar way to other central banks when faced with such a predicament.

DIEP NGUYEN