Vietnam inflation may have peaked, slow to 6 pct, JPMorgan says

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Vietnam's inflation may have peaked and could slow to 6 percent by the end of the year as global commodity prices ease, JPMorgan Chase & Co. said.

Consumer prices rose 9.05 percent in May from a year earlier, down from 9.23 percent in April and 9.46 percent in March. They increased 0.27 percent in May from April.

Evidence that inflation may slow further would give the government room to renew appeals for banks to revive lending by cutting interest rates. State Bank of Vietnam Deputy Governor Nguyen Van Binh told a World Economic Forum conference in Ho Chi Minh City on June 6 that the central bank will try to ease rates at the government's request.

"We're probably already past the worst," David Fernandez, Singapore-based head of research for emerging Asia at JPMorgan Chase Bank, said at a conference in Ho Chi Minh City Tuesday. "The headline numbers will probably continue to come down."

International food and energy prices are likely to be stable for the rest of the year, Fernandez said. Overall Vietnamese food prices rose 9.23 percent in May from a year earlier, while dropping 0.12 percent from April. Prices in Vietnam's transportation category rose 0.12 percent from April.

"This didn't happen only by the magic of global commodity prices," Fernandez said. "We have seen a tightening of credit, though that is starting to loosen up."

Credit growth

Credit expanded 8 percent in the first five months of the year, Thoi Bao Kinh Te Vietnam newspaper reported May 31, citing State Bank of Vietnam Governor Nguyen Van Giau. Last year, Vietnamese lending jumped 38 percent. The State Bank of Vietnam has set a 25 percent full-year target for 2010.

With inflation "looking more benign than everyone had expected," Vietnam's central bank may not adjust its benchmark interest rate all year, Fernandez said. The State Bank of Vietnam's so-called base rate has been held at 8 percent since December.

"People came into this year worried again about the same two issues that always plague Vietnam: the balance of payments and inflation," Fernandez said. "Many people have gone too far in expecting these to be macro challenges that require very strong measures."

Nicholas Kwan, the Hong Kong-based regional head of research at Standard Chartered Plc, told journalists Monday at the World Economic Forum conference in Ho Chi Minh City that the bank didn't expect "any significant moves" in the benchmark rate, and that Vietnam should focus on finding more effective monetary policy tools instead of changing the base rate.

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