According to BSC, fuel and food prices would have the biggest impact on the inflation rate. 

In September, Vietnam’s CPI, a gauge of inflation, saw a sharp increase by 0.59% against the previous month, and up 3.98% year-on-year, according to the General Statistics Office (GSO). The gauge marked an increase of 3.20% compared to the end of 2017. 

The growth rate of CPI in September is equal to that of in August, indicating a stable inflation rate after reaching 4.76% in June. 

In HSC’s report, the State Bank of Vietnam (SBV) is determined to keep the inflation rate under 4%, for which the key solution would be to restrict credit growth. As the move has not had any negative impact on the economic growth in the third quarter of 2018, HSC expected the SBV to continue its policy until at least the end of 2018. 

Although inflation rates in recent months have been under the 4% target, the rate may go up in the remaining months of the year due to seasonal factors, HSC warned, adding that the SBV would therefore be more cautious in its management. 

Under this circumstance, profits of the banking sector could be affected, but HSC maintained its prediction that pre-tax profit of listed banks would grow by 45.2% year-on-year in 2018. 

In fact, the net interest margin (NIM) and non-interest income have been increasing, while provision expenses are declining. Banks could still rely on irregular income through liquidation of collateral, resolving bad debts and offloading investments. 

Consequently, a slowdown in credit growth since the beginning of the year would not have any significant impact on banks’ profits. 

HSC expected profits of banks in 2019 to grow by 19.8% in face of credit growth limits. Meanwhile, BSC forecast the interest rate may increase marginally in the fourth quarter, due to inflationary pressure. 

The Asian Development Bank has recently said Vietnam’s inflationary pressure is likely to persist over the near term because of increase in international oil prices and upsurge in food prices. Therefore, the bank revised the country’s inflation to 4.0% in 2018 and 4.5% for 2019, up from the April estimates of 3.7% and 4.0%, respectively.