Vietnam central bank needs "consistent' policies, analysts say

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Vietnam's central bank needs to have a "clear and consistent" message on monetary policy to re-establish its credibility after surging interest rates contributed to accelerating inflation, analysts said.

"Policies were very confusing in 2010," and that affected the stability of the economy, Vo Tri Thanh, an analyst at the Central Institute for Economic Management, said at a meeting of the National Assembly Committee for Economic Affairs in Hanoi Saturday. The inconsistency of the State Bank of Vietnam's management of monetary and foreign exchange policy affected expectations of the central bank's policies, he said.

Deposit and lending rates in the Southeast Asian nation rose in a "complicated manner" especially over the last two months, Ha Van Hien, chairman of the committee, said at the meeting. Some commercial banks raised deposit rates to as high as 18 percent in November, local news agency VnEconomy reported on Dec. 8.

The Vietnamese government has been struggling to restrain inflation that's being stoked by economic expansion, higher food costs and a weaker currency. Inflation "has far exceeded our forecast," Hien said today, adding that high interest rates contributed to the increase.

Growth in consumer prices quickened to 11.75 percent in December, the fastest pace since February 2009, according to figures from the General Statistics Office in Hanoi.

"The government doesn't appear to have followed the rules of using monetary policy to curb inflation," Tran Du Lich, another member of the economic committee said today.

Vinashin debts

Moody Investors Service Inc. on Dec. 15 lowered Vietnam's long-term foreign-currency rating to B1 from Ba3, citing the risk of a balance of payments crisis and a decline in foreign reserves as inflation quickens and the nation's currency weakens. Moody's also highlighted "debt distress" at state- owned Vietnam Shipbuilding Industry Group, known as Vinashin.

The total exposure of Vietnam's banks to Vinashin's debts is less than VND26 trillion ($1.3 billion), central bank Governor Nguyen Van Giau said at the meeting Saturday.

The bad debt ratio of the banking system is about 2.5 percent this year, while credit in the banking system has grown 27.65 percent, Giau said.

The government has devalued the dong three times since November last year. The currency's depreciation is playing a "significant role" in the acceleration of inflation, according to the International Monetary Fund.

Greater priority

The central bank raised interest rates on Nov. 5 for the first time in almost a year, a day after the government said curbing inflation was a greater priority than boosting growth. Average dong deposit rates are 12.44 percent while average lending rates are 14.96 percent, the central bank said in a statement released at the meeting Saturday.

Inflation isn't expected to exceed 7 percent in 2011 and the economy will probably expand 7 percent to 7.5 percent next year, Deputy Minister of Planning and Investment Dang Huy Dong said at Saturday's meeting. Vietnam's government forecasts 6.7 percent growth this year.

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