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VN to adjust interest rates, weaken currency, chief banker says
Vietnam will adjust policy interest rates to “more suitable” levels after the first quarter and weaken the dong as much as 3 percent this year, central bank Governor Nguyen Van Binh said.
“We believe that 2012 will be a hard year, a challenging year for Vietnam’s economy,” Binh said at a conference in Hanoi today. “Slowing inflation is a prerequisite for interest rates to drop, but it doesn’t always happen like that.”
Vietnam faces Asia’s fastest price gains, a trade deficit, risks in the banking sector and slowing economic growth as the global recovery falters. While Indonesia and Thailand have cut borrowing costs in recent weeks to shield expansion, the World Bank and International Monetary Fund said in December that Vietnam may undermine progress toward economic stability if it loosens monetary policy too soon.
Consumer-price growth in 2012 may be less than 12 percent at worst and 8.5 percent to 9 percent in a “good” scenario, Binh said, compared with 18.13 percent in December.
Vietnam’s dong weakened 7.4 percent against the dollar last year, including a devaluation of about 7 percent in February. The currency climbed 0.1 percent to 21,013 per dollar as of 2:59 p.m. local time on Wednesday. The VN Index of stocks closed up 0.8 percent.
Purchases of dollars and gold by Vietnamese seeking stores of value have put pressure on the dong. Binh said the currency will depreciate 2 percent to 3 percent this year.
6% GDP growth
The economy may grow 6 percent in 2012 if officials can build confidence, Victoria Kwakwa, the Hanoi-based Vietnam country director for the World Bank, said at the same conference.
“We’re optimistic that Vietnam doesn’t have to give up too much growth to contain inflation,” Kwakwa said.
The nation will also focus in the first quarter on easing bank liquidity challenges, including through restructuring five to eight lenders, Binh said.
The banking sector is showing signs of stress and asset quality remains a “concern” given “unusually high” credit growth in recent years, the World Bank said last month.
Last year, the State Bank of Vietnam unveiled plans to create a three-tiered financial industry dominated by 15 lenders as part of efforts to allay concerns over the banking system.
Credit in Vietnam expanded 13 percent in 2011, Binh said. The nation targets a balance of payments surplus of $3 billion in 2012 and enough foreign-exchange reserves to cover 12-15 weeks of imports by 2015, he also said.
Vietnam’s inflation rate in December moderated from 19.83 percent in November. It remains the fastest in a basket of 17 Asia-Pacific economies tracked by Bloomberg.
If inflation eases to 9 percent, deposit rates will fall to 10 percent to 11 percent, Binh said. Interest rates will be stable in the three months through March, he said.
The State Bank of Vietnam cut its repurchase rate to 14 percent from 15 percent in July last year. The refinancing rate is 15 percent and the discount rate is 13 percent.
The economy, a production hub for companies such as Intel Corp., grew 5.89 percent in 2011, down from 6.78 percent in 2010.
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