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Standard Chartered, Fitch revise Vietnam outlook
Standard Chartered Bank and the Fitch credit rating service have both issued reports lowering their outlook for Vietnam's growth and anticipating a higher inflation rate and a weaker dong this year.
On Wednesday, Standard Chartered raised its expectations of Vietnam's inflation hi 2008 from 17 per cent to 23 per cent and lowered its forecast for growth in GDP from 7.5 per cent to 6.7 per cent based on the ongoing rise in global oil and commodity prices, and the Government's tighter monetary policy.
Figures in May have begun to bear this out. The consumer price index rose 25.2 per cent year-on-year in May, and 3.9 per cent in the single month since April.
Fitch yesterday affirmed Vietnam's BB-minus long-term foreign currency issuer default rating (IDR) and its BB long-term local currency IDR, but the agency still revised the outlook from stable to negative, calling double-digit inflation "a serious concern for Vietnam".
Fitch also affirmed its short-term foreign currency IDR at B and the country ceiling at BB minus, the agency statement said.
Vietnam's external balance sheet remains strong compared with similar economies, the agency said, but warned that "signs of economic overheating are evident in its recent balance of payments performance."
"There has been a sharp deterioration in the country's current account deficit, whose financing increasingly depends on non-FDI capital inflows," said Franklin Poon, director of Fitch's Asia sovereign ratings team.
Standard Chartered's regional head of economic research, Tai Hui, likewise predicted a rise in the nation's trade deficit this year to US$30 billion and noted that fiscal policy aimed at reducing the trade deficit has already put an upward pressure on the value of the dong.
Standard Chartered predicted that, in the next quarter, the US dollar would rise to VND16,700 and continue rising to VND17,000 by the end of the year.
Most commercial banks are now listing buy/sell rates at about VND16,200, with the domestic currency still limited to fluctuations of no more than 1 per cent against the daily trading band set by the central bank.
The central bank has raised the prime rate from 8.75 per cent to 12 per cent and moved the discount rate from 11 per cent to 13 per cent, and Hui expected further increases in both money market rates and prime rates in the coming months.
With the tighter credit picture and rising commercial lending rates, an economic slowdown was inevitable, but Hui believed that higher benchmark rates would help provide some stability in exchange rates and help curb inflation.
VNN
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