Inflation 'limits room' for Vietnam rate cuts: IMF

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The International Monetary Fund is not very hopeful that Vietnam can make further interest rate cuts this year.

"While headline inflation has come down, core inflation (excluding raw food and energy) remains high, limiting the room for rate cuts," it said in a release at the conclusion of a mission to Hanoi and Ho Chi Minh City from April 8 to 25 for the 2013 Article IV Consultation discussion with Vietnamese authorities.

Consumer prices rose by 6.61 percent year-on-year in April. Prices have risen 2.41 percent so far this year.

The State Bank of Vietnam made its only cuts this year in March when it lowered the refinance rate to 8 percent from 9 percent and the discount rate to 6 percent from 7 percent.

But UK-based Standard Chartered Bank said in a recent report that the central bank "may take advantage" of still-benign inflation to go for a rate cut of 0.5 percent.

The IMF's report said the "economy could be bottoming out, led by strong exports."

Last quarter exports increased by 20 percent to US$29.76 billion and exceeded imports by $278 million.

The financial market has become "calm" due to the central bank's efforts to provide liquidity and merge weak banks, the IMF said.

With a current account surplus of $9 billion last year partly due to low imports, foreign reserves have increased to two and a half months of imports, it said.

But the government needs to "accelerate reforms in the banking sector and the SOE sectors to reduce vulnerabilities and restore Vietnam to a higher, sound and sustainable growth path," it added.

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