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Inflation up around the bend
Experts have said that they can see signs of the imminent return of high inflation.
Nguyen Duc Thanh, an economist, said that signs of the return of high inflation have appeared. A high credit growth rate, the warming up asset markets and increasing raw material prices all herald its return.
“We would like to give warning that once the world’s economy recovers, Vietnam will see inflation return,” Thanh said.
Trinh Hoai Giang, Deputy General Director of HCM City Securities Company, also said that though signs have been not very clear, inflation is a real threat.
He added that a lot of current factors may lead to high inflation, including the big demand stimulus package in comparison with GDP, big spending by the government, and the weakening of the dollar as well. Some big and cautious investors have cut investments in bonds in anticipation of high inflation.
Jim Rogers, a big US investor, recently said that the greenback value increased very sharply in the last time, and warned of a possible monetary crisis. Meanwhile, domestic experts said that a crisis of the dollar would bolster the possibility of inflation in the world, including in Vietnam.
Inflation has become an obsession in Vietnam, because when it occurs, commodity prices always gallop more quickly and sharply in comparison with other economies. Vietnam is a small and developing economy, and it needs a high credit growth rate if it wants to develop strongly. In order to obtain high credit growth rate, the government tends to loosen monetary policies, which bring about a risk of high inflation.
Experts have also pointed out that Vietnam has been relying on imports and exports, which means that when the world’s prices increase, domestic prices always go up accordingly.
Meanwhile, the viewpoint of the government now is that while the national economy is yet to recover, obtaining a reasonable economic growth rate remains the top priority task. Some government officials believe that it is still too early to worry about high inflation.
In fact, the State Bank of Vietnam is now using a tool considered a ‘brake’: the basic interest rate. The rate is now 7% per annum, just half of the highest basic interest rate seen mid last year.
Deputy Governor of the State Bank of Vietnam Nguyen Van Binh said that the central bank is striving to obtain a 20-23% credit growth rate in 2009.
Where is the money coming from?
The strong flow of cash into the stock market has raised a question: Where is the money coming from?
According to Nguyen Trung Ha, Chairman of the Board of Directors of Thien Viet Securities Company, there are three sources:
First, in the first months of the year, a big volume of gold people hoarded up in recent years was sold when the gold price increased. The sum of money from the gold sales was estimated at $2.5-3 billion (the figure was estimated after considering the figures about gold export turnover in the period).
Second, the money is coming from the government’s demand stimulus packages, especially the low-cost capital under the preferential loans. A considerable volume of the capital is now flowing into the stock market.
Third, the money from foreign investors, though still small, is now tending to increase.
vietnamnet
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