Why Vietnam Takes the Lead in Rate Cuts

Amidst regional tightening trends, the State Bank of Vietnam lowered some key rates by 50 to 100 basis points

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Mar 17, 2023
  • The State Bank of Vietnam surprisingly cut some of its key interest rates in March.
  • This is the first major rate cut, while all other central banks either hike or hold rates steady.
  • What makes Vietnam so confident, and why is its market so attractive?
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Vietnam has become one of the first countries to cut its key rates as the State Bank of Vietnam (SBV) lowered some key rates, including the discount rate (from 4.5% to 3.5% ) and the overnight electronic interbank rate (lowered by 100 basis points to 6%,), effective from March 15. Despite being one of the last central banks in Asia to tighten its monetary policy, the SBV delivered two 100 basis point rate hikes in 2022 to catch up with the trend. The SBV has demonstrated confidence in its decision-making process and the overall strength of Vietnam's economy.

Table 1: The first countries to cut key rates 2023


Source: CharlieBilello

Vietnam's consumer price index increased by 4.31% year over year in February, with an average CPI of 4.6% in the first two months of 2023. This is in line with their target of up to 4.5%. The CPI basket in Vietnam has a large proportion of food and travel costs, which is advantageous for the country. Vietnam is self-sufficient in food and even ranks top in rice, fishery, vegetable, fruit and coffee exports.

Graph 1: Inflation showed signs of cooling down


Source: BSC, GSO

Vietnam possesses a wealth of energy resources, such as coal, oil and natural gas, and is also committed to the goals of COP26, investing strongly in renewable energy, specifically solar and wind power. With this potential, Vietnam can achieve complete energy self-sufficiency in the near future, reducing the risk of energy-related issues.

Graph 2: Retail showed signs of recovery


Source: BSC, GSO

Retail sales have rebounded to pre-Covid growth rates of 10% to 13%, and the number of foreign tourists has almost reached 1 million per month (66% of pre-Covid levels). This figure does not take into account the new Chinese tours that began on March 15, which are expected to further boost tourism and retail sales.

Despite a year-over-year decrease of 10.4% in exports and 16% decline in imports during the first two months of 2023, Vietnam is expected to maintain the recovery trend in import-export growth in March and April with an increase in new export orders. The country is attracting more investment in manufacturing from major corporations such as Apple (

AAPL, Financial), Samsung (XKRX:005930, Financial), Foxconn (TSE:2354) and Lego.

Table 2: Vietnam key export and import growth


Source: BSC, GSO

The purchasing managers' index in February rose to 51.2 points from 47.4 in January. After the Tet holidays, manufacturing activities have become more active, with an increase in new orders and improved market demand, leading to a rise in output and employment. Input costs are increasing faster, which is causing selling prices to go up.

Vietnam has a greater opportunity to invest in infrastructure as the country did not use fiscal spending as much during the Covid period (2020 to 2022). In fact, the country has announced its biggest investment plan in infrastructure, worth 711 trillion Vietnamese dong (close to $30 billion), which is 40% higher than the disbursement in 2022.

Graph 3: Vietnam infrastruture investment plan


Source: BSC, GSO

The interbank exchange rate of U.S. dollars/Vietnamese dong reached 23,633 as of Dec. 30, which represents a 3.4% increase year to date. Despite the increase, the exchange rate is still relatively stable compared to other countries and is lower than their average rates. This indicates the Vietnamese dong is holding up well against the U.S. dollar, which is positive news for the country's economy.

Table 3: Vietnam currency vs other asian's one


Source: BSC, Bloomberg

The VN-Index, Vietnam's main stock index, dropped nearly 30% in 2022, with the sharpest decline reaching 42%, the largest drop among frontier and emerging markets. The stock market's valuation has dropped to a very attractive level of around 12 times earnings, which is relatively low compared to other frontier and emerging countries. Meanwhile, the average liquidity has remained high at nearly $1 billion per day in 2022, surpassing some other emerging markets.

Graph 4: Vietnam stock market valuation vs Asian markets' valuation


Source: BSC, Bloomberg

Vietnam's stock market has garnered significant interest from foreign investors, with ownership totaling $41.7 billion, equivalent to 18.6% of the market's total value. However, this is relatively low for a leading country in the frontier market and is being closely watched for a potential reclassification to a secondary emerging country by the FTSE. Notably, cash flow through exchange-traded funds has been pouring into Vietnam's market, making it an attractive destination for foreign investors. As a result, several listed ETFs are available, including the FTSE Vietnam ETF, Vaneck Vietnam ETF (

VNM, Financial), Fubon FTSE Vietnam 30 ETF and more to come when the country will be officially reclassifed to emerging market.

Table 4: ETF that invested in Vietnam market


Source: BSC, Bloomberg

In summary, Vietnam's economy is bouncing back rapidly and is expected to achieve a high gross domestic product growth rate of 6.5% and keep inflation under 4.5%. Vietnam remains a top choice for foreign investment and international tourism in Asia and is benefiting from the China+1 strategy as well as China opening trends. Moreover, Vietnam has a lot of room to increase public investment and has taken the lead in cutting rates and implementing a more relaxed monetary policy. Additionally, the company's stock market is currently offering a great investment opportunity as it has the lowest price-earnings ratio in years, well outside the two-standard deviation from the five-year average.


I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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