Vietnam hikes rates to cool double-digit inflation

 http://www.forbes.com/markets/feeds/afx/2008/01/30/afx4590630.html

HANOI (Thomson Financial) – Vietnam’s central bank Wednesday said it would raise benchmark interest rates for the first time since December 2005, battling double-digit inflation which has sparked popular anger and labour unrest.

Aiming to cool bank lending, the State Bank of Vietnam will from February 1 raise the base rate used by commercial banks to calculate loans from 8.25 to 8.75 percent, said a statement on the bank’s website.

The State Bank of Vietnam will also raise the refinancing rate, at which the central bank lends to commercial banks, from 6.5 to 7.5 percent, and the discount rate from 4.5 to 6.0 percent, the statement said.

‘It’s a step in the right direction,’ the UN Development Programme’s chief economist in Vietnam, Jonathan Pincus, told Agence France-Presse.

‘Many economists have been saying we think the economy is overheating and that an interest rate move would be warranted to encourage savings and slow down the growth of credit, which many see as the main driver of inflation.’

The International Monetary Fund last year urged Vietnam to limit credit growth, and the government has set a goal of keeping annual inflation below gross domestic product growth, which hit nearly 8.5 percent in 2007.

Spiralling food and consumer prices — driven up by a cash influx amid Vietnam’s rapid economic growth — have hit the poor the hardest and fuelled a surge in labour strikes demanding higher wages.

In January, the second month of double-digit inflation, thousands of workers have gone on strike at scores of foreign owned plants, such as South Korean and Taiwanese textile and footwear factories around Ho Chi Minh City.

The state-run General Statistics Office estimated that consumer prices rose 14.1 percent in January from a year earlier, driven up mainly by food and construction material costs, ahead of next week’s Tet Lunar New Year.

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