Interest Rates Likely to Fall Further by Year End: Jpmorgan Chase

Lower-than-expected CPI in July will provide the basis for the State Bank of Vietnam (SBV) to further lower interest rates in the remaining months of this year, says JPMorgan Chase.

 

In its latest report, JPMorgan Chase predicted that interest rates will further drop at least 200 percentage points in the last six months of this year.

 

JPMorgan Chase experts said that credit growth and economic activities took place weakly in the first six months of this year, but it has begun to be more stable in recent times.

 

It estimated Vietnam’s basic inflation (excluding factors of fuel price and food-foodstuff prices) at 0.6 percent in July against June and at 8 percent over the same period last year.

 

According to JPMorgan Chase’s report, decreasing inflation will likely lead to the SBV’s decision to further ease monetary policy in support of the economic growth.

 

Due to rapidly declined inflation, Vietnam’s real interest rate is now at the highest level for many years, despite reductions of 400 to 500 percentage points so far this year, the report says.

 

It also predicts that inflation will further improve macroeconomic stability and balance of payments. The pressure on the balance of payments in Vietnam often derives from short-term capital flows that are sensitive to inflation, with people changing their capital sources amongst asset channels of saving the US dollar, Vietnamese dong and gold.

 

If inflation is still low, capital will likely continue to flow into assets in dong, the report says.

 

In July, Vietnam’s CPI dropped 0.29 percent from June and rose 5.35 percent over the same period last year. This increase was lower than expected at 5.6 percent given by JPMorgan Chase.