Vietnam PM pledges more rate cuts, tight check on inflation

People watch a live broadcast of Vietnamese prime minister Nguyen Tan Dung speaking at the national assembly

People watch a live broadcast of Vietnamese prime minister Nguyen Tan Dung speaking at the national assembly

HANOI (AFP) — Vietnam will keep lowering interest rates next year to free up credit and stimulate the economy, but without allowing inflation to flare up again, Prime Minister Nguyen Tan Dung said Thursday.

There will also be a more flexible exchange rate mechanism for the dong, which is allowed to trade within a narrow band against the US dollar, Dung said in a televised National Assembly address.

Vietnam has scaled down its annual economic growth forecast to around 6.5 percent for this year and next, from 8.5 percent last year, as it battles economic problems including double-digit inflation and a large trade gap.

“Interest rates remain high and lending has slowed down, so businesses and producers have faced difficulties,” Dung said. “Inflation and the global downturn have clearly had a negative impact on our economy in late 2008.”

The premier said that in 2009 “we will continue to reduce interest rates” after the central bank this month cut the benchmark rate to 12 percent, the second drop in two weeks, in order to stimulate the economy.

But Dung said the government would also keep a close eye on inflation, which has caused public anger and driven labour unrest this year, and would tighten monetary policy if necessary to control it.

The consumer price index fell to 26.7 percent in October against the same month last year, from 27.9 percent in September, as global energy and commodity prices have dropped off.

“We will closely follow upheavals in domestic consumer prices and developments and movements in international markets, to respond appropriately and not allow inflation to increase again,” Dung said.

He also promised more flexible forex management after the central bank last week widened the dong’s trading band, effectively allowing the currency to fall against the greenback to make Vietnamese exports cheaper.

“We will manage the foreign exchange rate more flexibly to more efficiently react to turbulence in capital flows, to support exports, to contain the trade deficit, to maintain the stability of the balance of payments, and to maintain the necessary foreign currency reserves,” Dung said.

The assembly heard this week that the State Bank of Vietnam has foreign currency reserves of 22 billion dollars.

Dung also pledged to step up “monitoring of banks and financial services and real estate trading,” after rampant credit growth and skyrocketing property prices contributed to Vietnam’s economy overheating this year.

“In 2009, we have to continue to contain inflation, prevent a recession and maintain sustainable growth, while fiscal policies must more efficiently support monetary policies,” said Dung.

Next year “the government will continue to suspend projects that are not truly necessary, or inefficient … and closely control the investments of state-owned enterprises,” the premier added.

The assembly last week approved a 2009 government budget projecting spending of 491.3 trillion dong, which would allow for a budget deficit worth 4.82 percent of gross domestic product, state media reported.

AFP: Vietnam PM pledges more rate cuts, tight check on inflation

One Response

  1. Vietnam has quietly emerged as one of the fastest growing-economies in Asia. Real economic growth is expected to approach 8 percent this year after averaging 7.5 percent over the 2001-05 period.

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