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Too early to slash interest rates, say economists
Specialists from the Standard Chartered Bank (SCB) have warned that any base interest rate cuts at present will put more psychological pressure on the market, as foreign investors expect the State Bank of Vietnam (SBV) to continue to introduce a tight monetary policy to curb inflation.
The Vietnam Petroleum Corporation’s (Petrolimex) recent decision to raise retail petrol prices is expected to put more pressure on the fight against inflation in the coming months.
There is no denying the fact that during international integration, the national economy will operate in line with the regulations of a market economy and adjusting domestic petrol prices closer to global market levels is a correct step. This also means the SBV will intensify its tight monetary policy to keep runaway inflation in check.
The fight against the overheated development of the national economy is not over yet, and it is too early to consider cutting the base interest rate, according to Tai Hui, head of the SEA economic research group of the Standard Chartered Bank.
He says that the recent adjustment of retail oil prices, the second since February this year, will certainly have an impact on Vietnam’s inflation.
A senior official of the State Bank of Vietnam (SBV) says that inflation has shown signs of falling in July, standing at around 1 percent. However, the rise in petrol prices is expected to drive the figure up by 0.7-1 percent in August against July.
The SCB forecasts that Vietnam’s inflation rate is likely to hit 30 percent in the third and fourth quarters of this year before falling to 20 percent in the first quarter of 2009. According to the bank’s estimate, Vietnam’s inflation will hover about 25 percent in 2008 and drop to 15 percent in 2009.
Tai Hui suggests that the SBV bring the situation under control before taking any further steps, because the implementation of a loose monetary policy at present will weaken investors’ confidence in the national economy.
It is certain that investors will keep a close watch on any moves the SBV makes. The plan to increase credit growth from 30 percent to 40 percent to support exporters this year will be less useful, as the lending ratio has increased by 20 percent in the past six months.
VOV
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