Inflation accelerates in October for a second month

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Vietnam's inflation accelerated for a second month, reducing the scope to ease monetary policy and spur an economy set to grow at the slowest pace in 13 years.

Consumer prices rose 7 percent in October from a year earlier after climbing 6.48 percent in September, the General Statistics Office said in Hanoi Wednesday. The median of four estimates in a Bloomberg News survey was 6.75 percent. Prices gained 0.85 percent from the previous month.

The nation will maintain a tight, flexible monetary and fiscal policy in 2013 and lower interest rates in line with inflation, Prime Minister Nguyen Tan Dung told legislators at the National Assembly in Hanoi this week. The economy may expand 5.2 percent this year, he said, the slowest pace since 1999, and the fifth straight year of sub-7 percent growth, the longest streak since Vietnam's shift in 1986 to a market-based economy.

"Faster inflation makes it tougher" for the central bank to take measures to revive the economy, David Kadarauch, managing director of investment banking for Saigon Securities Inc., said before the release. "I would bet on barely 5 percent or sub-5 percent growth this year."

The central bank has cut its refinancing rate to 10 percent from 15 percent at the beginning of the year, and its repurchase rate to 8 percent from 14 percent. The monetary authority has encouraged lenders to reduce borrowing costs for businesses even as the rising level of bad debt threatens the stability of the financial system and made banks reluctant to lend.

The dong has gained almost 1 percent against the dollar this year. A slower inflation rate has been critical to renewed confidence in the currency, said Matt Hildebrandt, a Singapore-based economist at JPMorgan Chase & Co.

"Inflation is key in the short-term for macro stability," said Hildebrandt, adding that bank deleveraging and slower growth will stop price gains from "running away." The central bank is unlikely to cut interest rates further, and price gains may accelerate to about 12 percent by mid-2013, he said.

Vietnam's economy will expand 5.1 percent in 2012, the Asian Development Bank said in October, lower than a previous forecast of 5.7 percent. Growth may be 5.7 percent in 2013, it said, compared to an earlier prediction of 6.2 percent.

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