Vietnam may raise rate as dong falls to record low, Maybank says


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HANOI (Bloomberg): Calls for an interest-rate hike in Vietnam are emerging, with Malayan Banking Bhd. forecasting an increase as early as this month, as the currency weakened to a record low.

"We expect the State Bank of Vietnam to hike policy rates by 50 basis points, in a bid to stabilize the sliding dong,” Maybank analysts Brian Lee and Chua Hak Bin wrote in a note on Thursday. "A hike may happen in the upcoming weeks, sometime in May or June.”

The SBV raised the reverse repurchase rate to 4.5% on Wednesday, delivering its second quarter-point hike in the past month, in moves seen as efforts to stabilize the dong. The currency, which has lost more than 4% this year, fell to a record-low 25,470 per dollar on Thursday.

Emerging markets have been under pressure this year from bouts of dollar strength, with Indonesia delivering a surprise rate hike in April to bolster the rupiah.

The State Bank of Vietnam, the only monetary authority in South-East Asia to ease rates last year, has so far refrained from adjusting the refinancing rate - the main policy tool - from the current level of 4.5%.

Authorities are juggling a delicate balancing act as a rate hike may weigh on the economy, adding to risks stemming from faltering exports and tough access to bank lending. Officials are likely to consider other options first, according to MUFG Bank

"In terms of policy options, SBV will withdraw liquidity first and raise interbank rates, while also selling foreign exchange from its reserves to prevent the dong from weakening further,” said Michael Wan, senior currency analyst at MUFG in Singapore.

"It’s a very tight walking rope that SBV is managing in the midst of global factors such as high US rates and a stronger dollar.”

-- ©2024 Bloomberg L.P.

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