Vietnam inflation slows for first time since August

TN News

Email Print

Vietnam's inflation rate fell for the first time since August as food prices eased and higher interest rates cut into borrowing.

Consumer prices climbed 9.23 percent in April from a year earlier, down from 9.46 percent in March, according to figures released by the General Statistics Office in Hanoi Friday. Prices rose 0.14 percent in April from March, the lowest figure since a decline in monthly inflation in March 2009.

"Food prices, which led the earlier charge up the inflation slope, are now commanding the tentative descent downhill as well," wrote Wellian Wiranto, a Singapore-based economist at HSBC Holdings Plc. "The movement of food prices has a huge bearing on the overall consumer price index."

Moves to free banks to set lending rates by removing a link with the central bank benchmark rate initially raised borrowing costs, and credit growth has slowed, amounting to a "very clear" tightening of monetary policy, said Martin Rama, lead Vietnam economist for the World Bank.

"Credit growth in the first quarter was one of the lowest on record," Rama said before Friday's report was published.

Overall food prices rose 9.56 percent in April from a year earlier, slower than March's 10.73 percent. From a month earlier, food prices dropped 0.63 percent, with the sub- category including rice sliding 1.91 percent.

"Going forward, food supply may stay abundant for a few more months, keeping the overall inflation at bay," wrote HSBC's Wiranto.

Moody's, Fitch

Moody's Investors Service said last month that Vietnam had yet to quell inflationary expectations, and Fitch Ratings cited the risk of a further build-up in price pressures when it put the country's debt rating on negative watch.

The floating of lending rates led to an increase in borrowing costs to between 15 percent and 17 percent from 12 percent previously, according to Paul Gruenwald, chief Asia economist for Australia & New Zealand Banking Group Ltd.

"This has been equivalent to a tightening of monetary and credit policy," Singapore-based Gruenwald said. "Our call is for the State Bank of Vietnam to pause and assess."

While Vietnam has among the highest inflation rates in Asia, recent growth figures suggest that the current pace of economic expansion is unlikely to cause further acceleration in price increases, he said. Vietnam's economy grew 5.8 percent in the first quarter from a year earlier.

"Inflation momentum has peaked," said Gruenwald.

Lending rates

Vietnamese Prime Minister Nguyen Tan Dung asked state- owned banks to cut lending rates to between 12 percent and 13 percent, Thoi Bao Ngan Hang newspaper reported this week, after the cost of credit had increased this year to as much as 20 percent, according to Vietnam Property Fund Ltd.

Vietnam's central bank, which has held its base rate at 8 percent since December, has over the past two months eliminated maximum lending rates that were linked to the benchmark.

"The base rate is not very relevant anymore, with the removal of the lending caps," said Rama. "Our advice would be for the government to let the adjustment to market-driven interest rates work for some time, though we understand the government's concern that market rates have overshot."

More Business News