Illustrative image.

The bank’s October report, Vietnam Macro Monitoring, shows that industrial production and retail sales posted another month of high growth rates (13.0% and 36.1% year-on-year) which could be attributed both to strong economic activities and to the low-base effects.

Both exports and imports growth moderated in September due to weakening demand from major export markets. FDI commitment fell in September, affected by the heighted uncertainty about the global economic prospects while FDI disbursement continued to improve, the report says.

Despite softening energy prices, CPI inflation accelerated from 2.9% in August to 3.9% in September largely due to higher education costs and rents. Core CPI inflation accelerated as well, from 3.1% in August to 3.8% in September. The terms of trade deterioration eased in the third quarter compared to the previous three months.

Credit growth accelerated from 16.2% in August to 17.2% in September as the State Bank of Vietnam (SBV) raised credit growth limits on some commercial banks.

With strong demand for credit, average overnight interbank interest rate rose from 3.5% in August, reaching 5.48% in mid-October, the highest since 2013.

The Vietnamese dong continued to depreciate against a strengthening US dollar in September (1% month-on-month and 3.8% year-on-year). To stabilise the domestic currency, the SBV raised two key policy interest rates and the cap on key short-term rates on deposits denominated in local currency by 100 basis points, the first rate hike since April 2020. The budget balance posted a 0.5 billion USD deficit in September for the first time in 2022, but still registered a 10.5 billion USD surplus over the first 9 months of the year. Given the budget surplus, year-to-date government bond issuance reached only 28.7 % of annual plan, compared to 67.9% in 2021.

According to the report, while the economic recovery has remained strong, heightened uncertainties related to the slowing global economy, rising domestic inflation, and tightening global financial conditions warrant increased vigilance and policy agility.

Given the economy has not fully recovered and growth in main export markets is expected to slow, continued active fiscal policy to support the economy should be closely aligned with economic outcomes and coordinated with monetary policy.

At the same time, as CPI and Core CPI are reaching 4% – the policy rate set by the authorities – monetary authorities should be ready to consider further tightening of monetary policy to ensure inflation remains anchored.

Given the end of forbearance and tightening financial conditions, the financial sector faces heightened risks and prompt SBV guidance would help stem materialisation of such risks at the sector level, potentially affecting the real economy. /.