Price pressures to keep interest rates high

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Vietnam's November headline inflation rate may rise more than a percent from October, bringing annual inflation for the year near double digits and pressuring the central bank to keep monetary policies tight.

Based on data from the country's two biggest cities, economists and bankers expect November consumer price index to exceed 1 percent when the government statistics office likely issues the data this week.

Inflation is broadly in line with October and September, when CPI rose month-on-month by 1.1 percent and 1.3 percent respectively, but price pressures have accelerated since the April to August period, partly due to higher food prices.

The consumer price index in the capital, Hanoi, this month was estimated at 1.93 percent from October, a nine-month high, while Ho Chi Minh City's CPI was 1.73 percent, state media reported, quoting data from the cities' statistics offices.

Fund management firm Dragon Capital said in a report November CPI may rise 1.2 percent from last month. It forecasts the November year-to-date inflation to reach 8.9 percent while the annual November inflation may hit 10.4 percent.

Economists say inflation is likely to exceed the government's target of 8 percent given that the November and December data are expected to be high.

"It may reach double digits," said Vu Dinh Anh, deputy director of a government-affiliated institute that tracks prices.

In the face of rising inflation, the State Bank of Vietnam has signaled tighter monetary policies by raising the policy rate on Nov. 5 and halting a policy of trying to get commercial banks to lower lending rates.

Rates spiked as a result and the central bank was forced to boost its cash injections via open market operations to help ease a liquidity crunch.

Dong lending rates have fallen swiftly in the interbank market in the past week, said a currency trader at a foreign bank.

"This may be a result of the central bank's cash injection via open market operations and refinancing activities," he said.

But a sudden surge in short-term interbank lending, mostly in seven-day loans, is causing concern about longer-term lending, he said, because difficulties with liquidity in longer-term loans may become a problem once the central bank ceases its injections.

Anh said tight monetary policies were not enough.

"Such measures such as putting the brakes on capital disbursement and even raising banks' required reserves are necessary," he said.

Investment disbursement tends to speed up in the final months of the year, the same time prices pick up as lunar Tet, the largest holiday draws near.

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