Strong growth and low inflation has put an end to interest rate easing in Vietnam

Vietnam's headline GDP growth for 2015 registered 6.7% while inflation was benign at just 0.6%. This is a solid performance in comparison to the roller coaster ride a few years back.The strong domestic demand and pass-through effect from low energy prices are the two key factors behind the rosy outcome. 

This also means the end of the interest rate easing cycle. Domestic demand will continue to keep the economy in good stead, although 2016 could be tougher sailing given the US interest rate normalisation that is underway and ongoing deceleration in China. Overall GDP growth for 2016 is expected to clock 6.7%, unchanged from 2015. 

The high base effect in inflation will moderate going into 2016 despite the persistent slump in oil prices. The CPI inflation is expected to climb gradually towards the 2% level by 3Q16 with full-year inflation likely to average 1.8%. Currency depreciation has been the preferred option thus far to align the dong with regional currencies and to maintain export competitiveness. This could be employed from time to time this year but the scope is limited unless there is significant threat to export performance

With inflation set to normalise and growth expected to remain healthy, monetary policy direction will remain neutral despite the uncertain global environment. BOK will likely be on hold and will keep the refinance rate at the current level of 6.50% in 2016.