The State Bank of Vietnam, the country’s central bank, has yet to give the market a clear view of its policy direction, leaving market players unsure whether the authority wants to further growth or lower inflation.
Sherman Chan, HSBC’s Southeast Asia economist, said that a clear policy on monetary tightening was needed to rein inflation.
“The authorities seem to be still tossing up between boosting growth and curbing inflation. Recent policy actions suggest that there is still a bias towards growth,” said Chan.
In its latest economic report on Vietnam, Credit Suisse Group forecast Vietnam’s consumer price index would be 10% in 2011, compared to the government’s target of 7%.
Robert Prior-Wandesforde, Credit Suisse Group AG’s economist for India and South-East Asia, said the real problem for the country is that such signs of overheating have been emerging at a time when the economy expanded just 5.3% in 2009 and 6.8% in 2010.
These levels are well below what many, including the government, believe is sustainable for a rapidly emerging economy like Vietnam.
“The implication would seem to be that the growth/inflation trade-off has deteriorated. Notwithstanding the recent base rate rise which is likely to be backed up by a further 1% move in 2011, we believe the government’s preference generally remains for growth over inflation,” said Prior-Wandesforde.
Currently, the benchmark interest rate is set at 9% in the country.
However, the central bank twice earlier this month lifted the seven-day lending rates to local banks via the open market operation (OMO) to 11% per year from previous 8.75%.
Currently, with collateral being valuable paper such as government bonds, the central bank is lending to local banks at 11% per year.
An executive from the Vietnam Bank for Industry and Trade (Vietinbank) said the increase in rates could be signs of monetary tightening.
“As an important channel for local lenders to get short-term fund, higher borrowing cost on OMO can make banks’ average mobilization interest rates higher in general,” said the Vietinbank executive.
However, at a conference held by the National Assembly’s Economic Committee late last December, SBV Governor Nguyen Van Giau clearly stated that the central bank would try to reduce market interest rates to better support local enterprises.
In late December, as local lenders lifted deposit rates en masse to attract customers, the State Bank asked local lenders not to set deposit rates higher than 14% per year.
Le Xuan Nghia, vice head of Vietnam’s National Financial Surveillance Commission even expected the deposit rates would come down to 12% per year by end of the first quarter and 10% per year by end of September. (VIR)
Vietnamese
