Fitch lowers Vietnam's 2020 credit growth forecast to 8% from 11% on virus fears

The adjustment reflects the organization’s view for a sharper slowdown in credit expansion versus 13.7% in 2019 in the Southeast Asian economy. The 8% forecast is lower than the government’s existing 14% target for 2020 as risks remain.

The downbeat credit growth forecast is despite the State Bank of Vietnam’s reduction of its policy interest rates on March 17, which took its refinance rate to 5%, from 6% previously, and its discount rate to 3.5%, from 4.0% previously. The overnight lending rate in the inter-bank market was also cut to 6.0%, from 7.0%.

Fitch sees that the ample liquidity in the banking sector technically will not warrant further interest rate cuts, as the key problem lies in a lack of loan demand amid a weak economic outlook, and accordingly forecast the refinance and discount rate to be held at 5.0% and 3.5%, respectively, through 2020.

The organization has revised its 2020 average headline inflation forecast to 3.8%, from 5.7% previously, to account for the plunge in global oil prices to below $20/bbl at the time of writing, from more than $60/bbl in January amid an intensifying supply glut and weakening core inflation.

The inflation forecast lies within the central bank's 3.2-4.2% projection for the year and also reflects our view for the regulator to succeed in a target to keep inflation below the 4.0% level.

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