HSBC projects OMO rate to stay at 5% until H1 next year
Friday, July 29,2016AsemconnectVietnam - HSBC Bank has predicted that the State Bank of Vietnam would keep the open market operations (OMO) rate unchanged at 5% through the first half of 2017 as there is still a risk that inflation may overshoot the official target of 5% this year.
According to the bank, the Nikkei Purchasing Managers Index (PMI) continued to reflect improvement in the operating conditions of the sector, but the pace of expansion moderated marginally to 52.6 in June, from 52.7 in May.
The new orders index mirrored this trend, but new export orders advanced to a 14-month high while output growth quickened to an 11-month high. Higher output led to higher employment and increased purchasing activity, HSBC said in its Asia economics report released on July 27.
Notably, foreign direct investment (FDI) inflows more than doubled to over US$11 billion in the first half of 2016, compared to the same period last year. Manufacturing and processing industries accounted for about 70% of the total registered FDI.
The headline consumer price index (CPI) continued to pick up in June, rising 2.4% year-on-year from 2.3% in May. The uptick was driven significantly by increased demand of certain food items.
There were mass fish deaths along the central coastal areas of the country two months ago. Worried that poison or toxins might be behind the abnormal fish deaths, consumers bought less fish and more poultry and meat. Prolonged hot weather and drought also reduced vegetable supplies.
Meanwhile, the inflation target of 5% in 2016 could be missed. Higher costs of key services like healthcare and education, adverse weather conditions, higher global oil prices and expected gains in credit growth pose upside risks to inflation. Therefore, the central bank will keep the OMO rate unchanged through the first half of 2017.
According to the report, the aftermath of the June 23 referendum, where the UK voted to leave the European Union (EU), is still unfolding. Currency markets were the first to feel the jitters, with the pound weakening immediately along with sentiment.
However, HSBC said the Asian economies are likely to withstand market volatility as a result of Brexit, as the fundamental and economic dependence on the EU is not only small but is trending lower. Even if Brexit-related uncertainties take a toll on Asian economies, officials in the region still retain some policy options to cushion the impact.
Further, HSBC’s U.S. economist Kevin Logan expects no Federal Reserve (Fed) rate hike this year and has lowered his 2017 U.S. gross domestic product (GDP) forecast to 1.9% from 2.2%. This might have wider implications worldwide and is likely to impact the Asian countries also, as a slowdown in developed markets may dampen external demand further.
HSBC still lowered its 2017 growth forecasts for Asia ex-Japan by 0.2 percentage point. Two major channels through which the imminent Brexit can affect Asian economies are trade and investment.
Source: thesaigontimes.vn
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