More space to ease policy in Vietnam and a stable FX

Special focus: We now see Vietnam’s central bank cutting rates by another 50bps in 2H2023, as inflation remains below-target, growth remains weak due to goods exports, and with a supportive external funding environment. The risks are tilted towards more cuts, but will depend on whether the US Dollar remains weak. We continue to see VND remaining stable against the USD, and forecast USDVND at 23,300 by end-2023, given a balanced current account position, limited capital outflows, and strong FDI inflows.

FX views: Most emerging Asian currencies strengthened last week, amid the background of a 0.4% decline in dollar index. KRW outperformed regional peers on returning foreign inflows into the country’s stock market, followed by SGD and MYR.

Week in review: Asian economies’ manufacturing PMIs diverged in April, with China, Taiwan, South Korea, Malaysia, Singapore and Vietnam below 50-mark, while India, Indonesia, Philippines, and Thailand above 50-mark. Inflationary pressures continued to ease in South Korea, Indonesia, Philippines and Thailand last month.

Central bank monitor: Bank Negara Malaysia surprised markets by hiking its key OPR rate by 25bps to 3.00%. BNM sees upside risks to inflation and balanced risks for growth.

Week ahead: The main focus of the week ahead is on US CPI for April, which could be important to validate the more dovish shift by the Fed recently. Meanwhile in Asia, the focus will be on China’s trade and inflation numbers for April. We will get a sense of whether the recent bounce in Chinese exports is sustainable and signals of economic recovery in the country. Meanwhile, India will release April inflation print, which could cement existing expectations for a prolonged pause in rates by the RBI.

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WE EXPECT THE VIETNAM CENTRAL BANK TO CUT RATES BY ANOTHER 50BPS, BRINGING THE REFINANCING RATE TO 5% FROM 5.5%

Sources: Bloomberg, MUFG GMR