The strong economic recovery in the second quarter of 2022 along with positive expectations for the second half are behind United Overseas Bank (UOB) adjusting its forecast for Vietnam’s 2022 GDP growth from 6.5 per cent to 7 per cent.

It also believes, however, that Vietnam’s economy is facing clear challenges. Geopolitical issues have been heightened by the Russia - Ukraine conflict, which has led to fuel and food prices rising and supply chains being disrupted. Moreover, the drastic monetary tightening policy of the US Fed could be a risk to financial markets in emerging economies like Vietnam.

In the context of such uncertainties and despite the domestic economy growing strongly, it is likely that the State Bank of Vietnam (SBV) will continue to keep its current interest rate policy stable to support economic recovery, especially as inflation remains within the targeted range.

“However, with a more drastic move in monetary tightening from the Fed, we predict that the SBV will be able to start the interest rate hike cycle from the second quarter of 2023 or earlier, if growth momentum continues to remain and external risks are reduced,” the UOB said.

It predicted that new emerging currencies in Asia, including the VND, will face further downward pressure as the Fed is likely to continue to raise interest rates in the second half of 2022. “The USD/VND exchange rate will reach 23,400 in the third quarter of 2022, 23,500 in the fourth quarter of 2022, 23,550 in the first quarter of 2023 and 23,600 in the second quarter of 2023,” it believes.

Regarding inflation, the bank said the latest CPI data shows that inflationary pressure can be controlled, as the main impact is related to energy prices while food prices remain largely under control. However, the risk of increasing inflation is significant, as energy prices continue to rise rapidly.