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Vietnam inflation may quicken until mid-year
Inflation in Vietnam, already the highest in more than a decade, may accelerate further until the middle of the year, an investment fund focused on the country said in a monthly report.
Prices jumped 19.4 percent in March from a year earlier, the most since 1995, according to figures from the General Statistics Office in Hanoi.
JPMorgan Chase & Co. warned this week that a higher inflation rate could erode Vietnam’s export competitiveness.
The inflation was being driven by global food and oil prices, and by a surge in domestic credit, DWS Vietnam Fund Ltd. said in a note to investors this week.
While government policy in 2008 had focused on slowing inflation, the impact of monetary tightening often took six months to be felt, said the fund, which is managed by a Deutsche Bank AG unit.
“We should begin to see the effects of the State Bank of Vietnam’s policy initiatives in the middle of this year,” it said.
“Up to that point, we can expect to see the upward trend in the inflation figures.”
“Inflation could pose a serious challenge to economic policies and weigh on the growth outlook,” said Goldman Sachs economist Helen Qiao in a report released last week.
The Asian Development Bank doesn’t expect to see a decline from current levels of inflation until at least July and expects the year-on-year rate to exceed 10 percent until the middle of next year, according to a chart presented by the lender last week at a conference in Ho Chi Minh City.
Credit growth
Inflation was driven in part by credit growth that exceeded 50 percent last year, according to the ADB’s Vietnam Country Director Ayumi Konishi.
A surge in foreign investment, limited exchange rate flexibility, an expansionary fiscal policy, inefficient public projects and rising global commodity prices were also factors, according to the ADB.
Whatever the government did at this point, the year-on-year figure at the end of December would remain rather high, Konishi told investors at the Ho Chi Minh City conference.
The government’s efforts to slow inflation had hampered its ability to boost the stock markets, DWS Vietnam said.
It has used restrictions on trading bands and given State Capital Investment Corp. a mandate to buy shares as tools to try to boost the nation’s stock markets, DWS Vietnam Fund said.
“Other monetary policy measures are currently being directed at inflation,” the fund said.
“Monetary tightening through interest-rate hikes, reserve requirement ratio hikes, and central-bank bond issuances are the few measures left in the government’s toolbox to absorb liquidity and bring inflation back under control.’’ Qiao said.
The Vietnamese dong has weakened 0.7 percent against the US dollar this year, complicating central-bank efforts to combat imported inflation.
“The central bank will have to tighten monetary policy further to regain monetary control, especially if it cannot allow any dong appreciation, to curb inflationary pressures,’’ Hong Kong-based Qiao said.
Thanhnien
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