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The inflation rate remains high, the SBV still cannot loosen monetary policy

Wednesday 11, 03 2020
The analyzing department of SB Securities has just announced a report on the inflation situation in March 2020.
The inflation rate remains high, the SBV still cannot loosen monetary policy

KBSV maintains the view that the SBV will continue to be careful when dealing with the short-term monetary policy and will not have a strong monetary loosening action similar to that of other countries in the region, as the inflation remains at a higher level than the original goal, and there is a significant deficit in the amount of money in the system.

The March inflation report

The analyzing department of SB Securities has just announced a report on the inflation situation in March 2020. The global crude oil prices have currently dropped to around 35 USD/barrel from the level of around 60 USD/barrel at the beginning of the year, and this has been the most remarkable decrease for nearly 5 years.

The domestic gas and oil prices are expected to have strong decreasing sessions by the end of the week. With the assumption that the international oil prices will continue to be at a low level in this week, KBSV estimates that the average price of the Ron95 products in the calculating period (29th February – 13th March) will fall by 20% -2 5% over the last calculating period. Therefore, the price of the Ron95 gas in the calculation will drop by around 3,000 – 3,500 VND/liter.

KBSV also estimates that the gas and oil price indexes will drop by approximately 10% compared to the indexes from last month, and the indexes of the transportation group will drop by 5% in March. Meanwhile, the analyzing group said that the inflation pressure in March will fall on the food and medical items prices group. The rice export price will increase sharply (estimated by 5% over the previous year), increasing the domestic rice price and the food group prices index, with the latter increasing by 0.5% in March.

The domestic pork price in the latter half of March may increase for the two main reasons: the sharply increasing pork storing demands due to the worries about the spreading of the nCoV virus and the pork storing of traders to illegally export to China. However, averagely, in March, the pork price remains at a relatively similar level to that in February, thus making the effect of this kind of product on the CPI index in March relatively moderate.

The inflation rate remains high, the SBV still cannot loosen monetary policy

Meanwhile, the pharmaceutical and medical services sectors are expected to increase by around 0.15%, which is an equivalent to the level in February, due to the significantly high demands in several categories of medical drugs after the outbreak of the nCoV epidemic.

KBSV estimates that the CPI in March will reduce by 0.38% compared to the previous month and increase by 5.22% over the same period last year. The average inflation in the first 3 months of the year will increase by 5.68% over the same period.

​The potential future plans

Thus, KBSV maintains the viewpoint that the SBV will continue to be careful with short-term monetary policy and will not have a strong monetary loosening action similar to that of other countries in the region, as the inflation still remains at a higher level than the original goal, and there is a significant deficit in the amount of money in the system.

The Government will continue the strategy focusing on preventing the nCov from spreading and will also require commercial banks to continue supporting affected enterprises. The manufacturing activities of China have currently been recovered, therefore, KBSV thinks that the manufacturing sector of Vietnam will receive assistance.

However, tourism, transportation, aviation, and consuming enterprises still have to suffer from the serious impacts of the epidemic. The actions of stimulating growth via the fiscal policy such as increasing public investment and reducing the enterprise income tax will be taken advantage of after the nCoV is partly controlled.

​>> Vietnam’s banking industry affected by COVID-19

Source: https://cafef.vn

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