LOWER GROWTH AND INFLATION, THE SBV CUT RATES QUICKLY
• Real GDP growth decelerated in Q1 to 4.0% y/y from 6.1% in Q4 last year as domestic demand slumped, a result of tightened monetary settings. CPI inflation fell to 14.2% in March 2012.
• The trade deficit narrowed significantly as import growth slowed much more than exports, supporting the dong’s stability in Q1. We have observed structural changes to the trade profile as electronics and mobile phone exports (and imports) surged.
• The SBV cut its key policy rates by 100bps in March and another 100bps in April. Market interest rates fell drastically following the first policy move in March. The quickening pace of monetary easing worries us.
• We expect GDP growth to pick up in H2 on loosened policies, and 2012 growth to be at 5.5%. The overall growth slowdown will help bring inflation down to single digits in Q3.