HSBC has cut its inflation forecast for this year to 6.5 percent from the previous 7.3 percent, saying domestic demand has remained weak since the start of the year.
In an economic outlook report it released Tuesday it said consumer prices rose by a five-year low of 4.6 percent year-on-year in February during the Tet holidays after increasing by 5.5 percent a month earlier.
The lower-than-expected inflation rate last month meant low consumer confidence was still a bugbear for domestic economic activity.
Consumers were cutting spending on housing and clothes and only spent on essential items like food.
Two out of 11 items in the CPI basket even saw prices drop last month.
With the prices of a number of basic essential items going down and energy prices rising at a slow pace, demand was unlikely to recover in the next three months.
Weak consumption was resulting in less work for workers and below-potential performance by manufacturing businesses in a country facing bank bad-debts pressures and stagnant economic reforms.
But the slowing inflation offered an opportunity for the central bank to stabilize interest rates.
There was unlikely to be hikes in interest rates in the second quarter, and open-market-operations rates were likely to stabilize at around 5.5 percent this year.
Unlike the local consumption slump, demand in international markets had improved to boost Vietnam’s exports, which had remained a bright spot.
Exports were likely to post double-digit growth in 2014.
Like us on Facebook and scroll down to share your comment