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Inflation slows 9 month to 5.6%; lowest since 2004
Vietnamese inflation slowed for a ninth straight month in May to the lowest level in five years, suggesting the central bank may be able to avoid raising interest rates to tame faster loan growth.
Prices rose 5.6 percent from a year earlier, the lowest since 2004, according to figures from the General Statistics Office in Hanoi. The rate was 9.2 percent in April and 28.3 percent in August 2008. On a monthly basis, prices rose 0.4 percent in May from April.
“We’ll probably see sub-3 percent inflation by summer,” said Tai Hui, head of Southeast Asian economic research at Standard Chartered Plc in Singapore. “The main reasons for the slowdown are the easing of food and energy prices, and the base effects in the comparison with last year.”
A global economic slump has underpinned the end of the surge in prices last year that pushed Vietnam’s inflation rate to the highest since at least 1992. Slower inflation has allowed the central bank to cut interest rates to spur an economy that grew at the weakest pace on record in the first quarter.
The figure is “coming down with a vengeance,” wrote Prakriti Sofat, an economist at HSBC Holdings Plc in Singapore, in a research note this month. “Inflation looks set to continue heading south.”
Fitch Ratings said this month Vietnam’s benchmark interest rate had probably reached “a floor” and may need to be increased as a government subsidy program sparks an acceleration in the pace of loan growth. Citigroup Inc. last month said the program had sparked “a new credit boom” in Vietnam.
‘Still sluggish’
Total outstanding loans by Vietnamese banks increased 15 percent this year through mid-May, Deputy Prime Minister Nguyen Sinh Hung told the National Assembly May 20. Lending dried up in the second half of 2008, VinaCapital Investment Management Ltd. said a May 12 note.
The slowdown in inflation “makes it easier for the central bank to justify keeping rates where they are now,” said Hui of Standard Chartered. “With economic activity still sluggish, it would be premature for them to raise rates.”
The State Bank of Vietnam will keep its benchmark interest rate unchanged for a fourth month, after halving borrowing costs between October and February to support economic growth amid the global recession.
The central bank will keep its key rate unchanged at 7 percent for June, according to a statement on its website Friday. The bank will also hold its refinancing rate steady at 7 percent, and maintain the discount rate at 5 percent, effective June 1.
The government said this week it plans to target an expansion of 5 percent this year, lower than an earlier estimate of 6.5 percent.
Food prices gained 6.5 percent in May from a year earlier, down from a 14 percent gain through April. Prices in the sub-category including rice dropped 4.7 percent. Vietnam’s rice export prices are “well below” Thailand’s, which have been continuing to decline, the US Agriculture Department said in a May 13 note.
A “strong policy response” from the Vietnamese government helped bring inflation back into the single-digits, Standard & Poor’s said Thursday.
Fiscal stimulus
“The politically difficult steps taken to achieve this, as well as the continuing economic reforms implemented over this period, likely reassured investors,” Standard & Poor’s said.
Accelerating economic growth and higher commodity prices may cause inflation to “tick back up again” in the third or fourth quarters, Ho Chi Minh City-based fund managers Dragon Capital said in a note dated May 22.
A government plan to increase the country’s budget deficit to as much as 8 percent of gross domestic product may also revive inflation, some National Assembly members said during a May 21 session of the body.
thanhnien, Bloomberg
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