Vietnam inflation may breach goal, risking stability, ANZ says

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Vietnamese inflation is a risk to economic stability and will likely exceed the government's target of 7 percent for this year, Australia & New Zealand Banking Group Ltd. said.

"Inflation in 2011 can certainly reach 10 percent or above," Paul Gruenwald, ANZ's chief Asia economist, said by telephone from Singapore Tuesday. "In the absence of strong policy action, it will almost certainly exceed the government's target."

Vietnam's ruling Communist Party set a goal of as much as 8 percent economic growth annually until 2020 at the ongoing National Congress, a five-yearly meeting to select top leaders. Investors are watching the gathering for clues on whether the government will prioritize lowering inflation from close to a two-year high or permit another jump in lending.

The nation faces "the risk of an overheating economy" and "double-digit inflation threatens economic stability," Singapore-based analyst Hai Pham and Gruenwald said in an ANZ note Monday.

Prime Minister Nguyen Tan Dung's government has lagged behind nations from Thailand to Malaysia in raising interest rates to tackle inflation, which accelerated to a 22-month high of 11.75 percent in December from a year earlier.

Credit growth of about 28 percent in 2010, rising food prices and a weaker currency have spurred the acceleration.

The rate of inflation isn't expected to exceed 7 percent in 2011, Deputy Minister of Planning & Investment Dang Huy Dong said last month, without saying if he was referring to annual average inflation or the level in December from a year earlier. Gruenwald said ANZ's prediction applies to both measures.

Economic expansion

The government is aiming for economic expansion of about 7 percent in 2011, up from 6.8 percent last year, while the target for credit growth is 23 percent.

Inflation is currently "high," Truong Tan Sang, a member of the country's Politburo, said in Hanoi last week at the Congress, which is scheduled to end tomorrow.

The main cause of climbing inflation in 2010 was a "premature loosening of monetary policy," VinaCapital Investment Management Ltd. said in a monthly note. "A concerted effort to lower inflation appears to be under way," it said.

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