Central bank lowers rates for fourth time to boost growth

The State Bank of Vietnam cut interest rates for the fourth time in six weeks to sustain the economy as the global financial crisis undermines growth.

The key rate would fall to 10 percent from 11 percent, effective December 5, the government said in a statement. The refinancing rate will decline to 11 percent from 12 percent and the discount rate to 9 percent from 10 percent, also effective from the same date.

“This is a clear message that the government will make an all-out effort to help the slowing economy after containing inflation,” said Tran Phuong Binh, chief executive officer of Ho Chi Minh City-based DongA Commercial Bank.

Vietnam’s exports, tourism and services are suffering because of the global crisis, Prime Minister Nguyen Tan Dung said on November 27, according to a report on the government’s website. The key rate will probably fall to 7 percent by mid-2009 as the government tries to maintain growth, Deutsche Bank AG said last week.

Lower rates may help revive lending for struggling industries such as construction, after steel companies warned of a sharp decline in sales.

“The central bank’s rate cut is good in general, since it will force banks to lower their lending rates,” said Hoang Thach Lan, chief analyst of HCMCbased SME Securities Co.

The central bank reduced the amount of compulsory reserves that banks have to set aside by 2 percentage points to 6 percent.

“Pull out the stops”

The government will “pull out all the stops” to promote economic growth, London-based Standard Chartered Plc said last week.

Consumer prices rose 24.2 percent in November from a year earlier, the third straight month that inflation slowed after peaking at 28.3 percent in August.

Vietnam has slashed its economic growth target for this year to 6.7 percent from an earlier goal of as much as 9 percent. The central bank has switched tack after pushing the key rate to 14 percent this year, the highest level in Asia.

Source: Bloomberg


Vietnam to cut prime rate to 10 percent

Packages of bank notes in Hanoi

Packages of bank notes in Hanoi

HANOI (AFP) — Vietnam’s central bank will Friday lower its benchmark interest rate by one percentage point to 10 percent, its fourth cut since late October aimed at stimulating the economy.

The bank also reduced banks’ reserve requirements to free up credit.

The State Bank of Vietnam (SBV) raised benchmark rates several times early in the year to fight double-digit inflation but it switched course in late October, launching a series of rate cuts to free up credit.

“The continued reduction of the benchmark rate will create conditions for commercial banks to further cut their lending rates,” said a statement on the official government website.

The move aimed to help enterprises, producers and traders, it said.

Vietnam, a major exporter of manufactured goods such as clothing and footwear and commodities including rice, coffee and seafood, has been hit by downturns in the United States, Europe and other markets.

The communist government is now aiming for economic growth of around 6.5 percent this year and next year, down from 8.5 percent last year.

The recent monetary loosening reverses a series of three rate hikes earlier this year, from 8.25 percent to 14 percent.

Inflation has been in double digits all year but had eased to 24.2 percent year-on-year by November, having topped 28 percent in August.

The statement also said the SBV would cut the refinancing rate to 11 percent from 12 percent and the discount rate by one percentage point to nine percent.

Overnight interest rates for electronic and compensation payments on the inter-bank market were to be reduced to 11 percent from 12 percent.


Bandmaster in the age of inflation

14:05′ 27/11/2008 (GMT+7)

The MoPI is responsible for designing annual economic development plans.

VietNamNet Bridge – “Today, I can say that the top goal – controlling inflation – has been realised. This judgment is not subjective, but very practical. If we don’t make that judgment and continue focusing on inflation, it would be terrible,” said Prime Minister Nguyen Tan Dung.

Dung made the above comment seven months after he signed a document setting forth seven groups of measures to control inflation and stabilise macroeconomics. But to get those measures required some effort.

In early months of the year, some cabinet members still wanted to maintain the goal of high economic growth, arguing that the Vietnamese economy got a boom in 2007, one year after joining the World Trade Organization (WTO), and this growth impetus needed to be maintained in 2008.

However, bad signs began to appear. The trade deficit of the first quarter was equivalent to that of the entire 2007; interest rates were much lower than inflation; there were wild fluctuations of exchange rates, etc. Identifying difficulties to change economic goals when optimistic thinking dominated was a great difficulty.

“At that time a question was posed: Is it necessary to set the goal of controlling inflation or still give priority to the goal of economic growth? That was a hard question,” the Prime Minister said during a meeting of officials of the Ministry of Planning and Investment (MoPI) last week.

The MoPI is responsible for designing annual economic development plans. The cooperation between this agency and others, especially the State Bank of Vietnam and the Ministry of Finance, sometimes was not very good, Minister Vo Hong Phuc admitted, leading to wrong assessments about the economy.

It was not until March 2008 that the MoPI received data about the total means of payment and outstanding debts in 2007, the main causes of high inflation, from the State Bank of Vietnam.

The data “scared” the Prime Minister, as Minister Phuc told the National Assembly in May.

At that time, some officials proposed assigning the task of designing social-economic development programmes to the Ministry of Finance and the State Bank of Vietnam, lessening the role of the MoPI. It is said that the Ministry of Finance and the State Bank of Vietnam “didn’t dare” accept this duty.

In that situation, a group of MoPI experts quietly designed a draft document on eight groups of solutions to curb inflation, including tightening monetary policies, reducing the trade deficit, etc.

The draft, after being considered by related ministries and approved by the Politburo and the National Assembly, was signed by the PM on April 17. A member of the compilation team said if the document had been issued much later, the current economic situation might have been very bad.

The PM re-confirmed the function of the MoPI as “a think-tank for social and economic development strategies of the country” in Decree 116 dated November 14, 2008.

Minister Phuc said the MoPI would try its best to carry out this role. The ministry is working on a plan to cope with economic slowdown next year to submit to the government later this month. One of the key measures may be stimulating investment and local consumption.

(Source: SGTT)

Vietnam inflation eases to 24.2 pct in November

HANOI, Vietnam (AP) — Declining global oil and commodity prices slowed Vietnam’s inflation for a third month in November but the rate remains one of the highest in Asia.

The consumer price index rose 24.2 percent from a year earlier in November, easing from 26.7 percent in October, the government said Tuesday. Inflation hit a 17-year high of 28.3 percent in August.

Vietnam usually releases economic data before the end of the reporting period based on estimates.

The government has cut fuel prices several times since August following a fall in the global oil price.

Transportation prices eased by 4.4 percent from October and housing and construction material prices fell 4.9 percent, the General Statistics Office said in a statement.

Food prices fell by 0.1 percent but were still 37.6 percent higher than a year earlier. Housing and construction materials rose 14.7 percent from November last year.

The government has forecast inflation of 22 percent for 2008.

Vietnam’s economy has grown rapidly, expanding an average of 7 percent a year for the past decade, but began overheating last year with inflation skyrocketing and the trade deficit ballooning.

The government has predicted an annual growth rate of 6.7 percent for 2008. Last year, the country’s economy expanded by 8.5 percent.

The Associated Press: Vietnam inflation eases to 24.2 pct in November

Vietnam Money-Banks cut deposit rates to reduce costs

HANOI, Nov 24 (Reuters) – Vietnamese banks have cut dong deposit rates by up to 3.5 percentage point in the past week as they seek to cut borrowing costs and beef up lending, bankers said on Monday.

The Hanoi-based Military Bank said it had slashed dong deposits rates by 3.5 percentage point to 12 percent per year on its one-year dong deposits from Monday, from 15.5 percent per year previously.

Ho Chi Minh City-based Sacombank STB.HM also said it had cut the yield on its one-year dong deposit to 11.04 percent from last Friday.

“The lower interest on dong deposits would enable banks to reduce lending rates further in line with the central bank’s policy to help prevent an economic slowdown,” a banker at Military Bank said.

She said her bank had also lowered dong loan rates to about 14-16 percent per year and resumed consumer finance loans after several months of suspension as part of the central bank’s credit-tightening policy to battle double-digit inflation.

State-run banks, the market’s major lenders, have also cut dong loan rates in the past week with top lender Agribank now offered 12-14 percent per year to its prime clients.

Last Friday the central bank slashed three benchmark dong interest rates, its third rate cut in four weeks, and lowered bank reserve requirements.

The Southeast Asian country has battled double-digit inflation and a widening trade deficit for much of the year by tightening monetary policy, but officials appear increasingly concerned the global credit crisis could drag down growth.

Vietnam should keep lowering interest rates next year and manage the exchange rate flexibly in the face of a worsening global economy, Prime Minister Nguyen Tan Dung said earlier this month. (Reporting by Nguyen Nhat Lam; Editing by Kim Coghill)


PM: Vietnam’s Inflation Control Continues To Be 2009 Priority

HANOI, Nov 22 (Bernama) — Prime Minister Nguyen Tan Dung has made the prevention of the recurrence of inflation in Vietnam’s general target for 2009, the Vietnam news agency (VNA) reported.

Addressing a meeting here regarding the Planning and Investment sector’s work for 2009, the Prime Minister also reiterated next year’s gross domestic product (GDP) growth rate target of 6.5 percent.

In order to attain this target, the Planning and Investment sector should act as advisors over the balance and control of supply and demand to help stabilise the macro economy, as well as being active in preventing economic decline and maintaining an appropriate growth rate, the PM said.

The Government leader also pointed out the impact of the global economy’s recession on the domestic economy, particularly in areas such as exports and tourism.

As a result, he asked the sector to take necessary measures to minimise the effects of the world’s economic downturn on the country’s economy.

In this context, it is difficult for investors to implement their projects and arrange capital, although the country has attracted large sums of foreign direct investment this year.

Thus, the sector should create favourable conditions for the mobilisation of investment in effective projects, he added.

The PM stressed the necessity of a controlled loosening of its monetary policy, reducing interest rates along with investment stimulation and increasing the banking system’s liquidity and security.

In his opinion, there should be policies assisting small and medium-sized enterprises involved in export activities through preferential credit, tax incentives and guaranteeing

In addition, State-owned enterprises should receive more support in order to be able to form the backbone of the economy and be capable of regulating the market and the economy when it faces difficulties, he remarked.

The PM also asked the Planning and Investment sector to improve their capacity for forecast and supervision to ensure the fulfillment of next year’s targets.

To ensure social security, the Government is to offer unemployment benefit, he said.

Besides, a resolution regarding policy orientation and specific mechanisms for sustainable hunger eradication across the 61 poorest districts is soon to be announced, he added.

“The target is to bring the current poverty rate of 50 percent of households in these districts down to 40 percent by 2010 through the introduction of support policies for afforestration, plantation and animal husbandry,” he stressed.



Vietnam walks tightrope between inflation and downturn

HANOI – VIETNAM, like much of the world, is trying to stimulate its economy amid the global downturn, but it is in a quandary because it must also keep rampant inflation from flaring up again, say experts.

With a small and relatively insulated banking sector, Vietnam was not directly exposed to the subprime crisis that sparked the Wall Street meltdown and the subsequent worldwide credit crunch and turmoil on global financial markets.

But the wider economic repercussions of what has been called the worst global economic crisis since the Great Depression are already being felt in this developing economy, especially in the crucial export sector.

Amid slackening overseas demand, Vietnam’s monthly exports have steadily fallen from US$6.5 billion (S$9.87 billion) in July, to US$6 billion in August, to US$5.3 billionin September, to US$5.1 billion in October.

And, although it’s too early to say foreigners are pulling out of financial markets, in the past month they have been net sellers of bonds and stocks.

Inflation has been in double digits all year and stood at 26.7 per cent in October, a slight fall after a drop in global energy and commodity prices.

Aiming to reduce liquidity to fight inflation, the government had raised interest rates and bank reserve requirements several times this year.

But this has also starved businesses of credit for investment and working capital, forcing the central bank to reverse its monetary policy as both local and international factors have slowed economic growth in Vietnam.

Since late October, the State Bank of Vietnam has twice lowered its benchmark rate. It now stands at 12 per cent and Prime Minister Nguyen Tan Dung last week said more rate cuts could be expected to free up credit next year.

Mr Pham Do Chi, chief economist at investment fund VinaCapital Group, agreed that ‘the government can further reduce interest rates to help stimulate the economy through the domestic private sector and the foreign-invested sector.’

‘They may reduce the base interest rate further, by two percentage points in the next three months. The economy can absorb this because we have seen that inflation is coming down, and the economy is already cooling off.’

Consumer price increases started to level off in September and fell month-on-month by 0.2 per cent in October, government data said.

The communist government’s target is to bring annual inflation down to 23-24 per cent in 2008, and to less than 15 per cent in 2009, to defuse a major source of public anger and a wave of labour unrest.

Leaders have also cut the economic growth target from 8.5 per cent last year to around 6.5 per cent for this year and next – although some economists predict gross domestic product growth below six percent next year.

The government also predicts that export growth will slow to about 13 per cent in 2009 from a projected 33 per cent this year.

‘As the situation has completely changed in the space of three, four months, lowering the rates goes rather in the right direction,’ said Mr Sebastien Barbe, economist at Calyon of Credit Agricole French group, based in Hong Kong.

Vietnam’s inflation ‘is enormous but it will be less and less of a concern because disinflation forces that are at work everywhere are very, very strong.’

Still, Vietnam’s room for manoeuvre remains limited because the inflationary risk in the country has not disappeared. Some experts warn for example that public service wage increases next year could contribute to driving up prices again.

‘The main challenge is how you manage the macroeconomic situation in such a way that you can cope with the global economic slowdown… without rekindling inflationary pressures of the very recent past,’ said Mr Chi.

Mr Vo Tri Thanh, research director at the Central Institute for Economic Management under the Ministry of Planning and Investment, said it was ‘the time for us to ease, but cautiously, macroeconomic policy.’

A loosening is necessary as ‘social issues now emerge,’ he said, pointing at the rise in the number of labour strikes and increased unemployment. — AFP


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

Vietnam inflation slows, foreign investment surges

Tuesday, October 28, 2008

HANOI, Vietnam: Vietnam’s inflation rate eased to 26.7 percent in October as global oil and commodity prices fell but remains one of the highest in Asia, according to government figures released Tuesday.

Despite high inflation, Vietnam continues to attract record foreign direct investment commitments as investors believe the country’s long-term growth prospects are sound. Pledged foreign direct investment from January to October totals $58.3 billion, up nearly six times from the same period of last year, the General Statistics Office said.

The consumer price index has now fallen for two consecutive months after reaching a 17-year high of 28.3 percent in August, the statistics office said in a statement. Vietnam usually releases economic data before the end of the reporting period based on estimates.

The government has cut fuel prices several times since August following a steep fall in the global price of crude oil. The consumer price index fell 0.2 percent from September.

Vietnam’s economy has grown rapidly over the last decade, powered by an influx of foreign capital, but began overheating last year. The economy grew 8.5 percent last year but slowed to 6.5 percent in the first nine months of this year, hit by government efforts to tame rampant inflation and a swelling trade deficit.

Food prices in September surged 40.6 percent from a year earlier and the cost of housing and construction materials jumped 22.8 percent.

Prime Minister Nguyen Tan Dung said earlier this month that the government expects inflation for 2008 to be 24 percent.

As of Oct. 22, some 953 new projects have been licensed this year, the GSO said.

Malaysia topped the list of investments by country, with investment commitments totaling $14.9 billion so far this year. The bulk that figure comes from a $9.79-billion steel mill project licensed in September.

Taiwan came second with $8.6 billion of investment commitments, followed by Japan with $7.3 billion.


Vietnam faces poverty threat

The United Nations has warned that double-digit inflation and shocks from the global financial turmoil are threatening to plunge Vietnamese households living on the margins, back into dire poverty.

UN resident coordinator, John Hendra, says many groups remain vulnerable to food shortages, especially landless farmers, the urban poor and ethnic minority groups..

He says global commodity and energy prices have dropped back from their peaks this year, but Vietnam’s inflation, still stood at almost 27 per cent this month.

He says the global financial crisis will likely impact Vietnam’s export-driven economy on top of the soaring consumer prices.

Vietnam faces poverty threat