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Vietnam keeps tightening, raises another key rate
Vietnam on Tuesday lifted the interest rate at which it lends to banks in open market operations in a fresh step to try to snuff out inflationary pressures.
The move comes as authorities are taking a series of steps to come to grips with double-digit inflation, wide trade and fiscal deficits and a chronically weak currency. Inflationary pressure in Vietnam is expected to worsen due to an electricity price hike.
The State Bank of Vietnam increased the reverse repurchase rate to 12 percent after holding it at 11 percent since January 10, central bank data showed.
The reverse repo rate for the seven-day term has been increased by 5 percentage points since early November.
"I give high marks to this move which fits within the framework of tightening both monetary and fiscal policies to reduce aggregate demand and curb the trade deficit and inflation," said Alan Pham, chief economist at the brokerage VinaSecurities.
"If tighter monetary and fiscal policies are implemented, I expect the government can maintain macroeconomic balances."
Last week, the central bank raised another important interest rate, the refinance rate, by 200 basis points to 11 percent, a move welcomed by economists as a sign the authorities were finally starting to move in the right direction on inflation.
In January, the consumer price index rose 12.2 percent from the same month last year, approaching a two-year high, and economists have said they expect inflation to persist for much of the year.
The prime minister this week was reported to have approved a record 15.3 percent increase in electricity prices from March 1. The government was also considering raising the price of petrol.
The government devalued the dong by 8.5 percent on February 11, after a mismatch between official and unofficial rates that had been allowed to fester for more than four months.
Vietnam's monetary policy is in a state of flux with the base rate, viewed previously as the benchmark, having been de-linked from bank lending rates last year.
Economists and traders say the reverse repo rate has become increasingly important. Indeed, State Bank Governor Nguyen Van Giau said last year the central bank would increasingly rely on open market operations to influence policy. ($1 = VND20,875)
tuoitrenews, Reuters
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