Vietnam inflation slows to 17.27 pct, supporting case for rate cuts

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Vietnam's inflation slowed for a fifth month in January, giving the central bank more room to cut interest rates as a deteriorating global economy dims the outlook for exports.

Consumer prices climbed 17.27 percent from a year earlier, the General Statistics Office said in Hanoi on January 21, compared with an 18.13 percent pace reported earlier for December. Prices rose 1 percent in January from December.

Vietnam's central bank signaled this month that it may cut rates to "more suitable" levels after the first quarter. While emerging markets from Thailand to the Philippines have reduced borrowing costs to spur growth, the International Monetary Fund and the World Bank said last month Vietnam must guard against loosening monetary policy too soon.

"Inflation slowing down will give the central bank more confidence to cut rates," Trinh Nguyen, a Hong Kong-based economist at HSBC Holdings Plc., said before the data release. "But they'll want to look at how inflation behaves excluding food and energy prices before they make a decision as to when to cut."

Vietnam's dong fell 0.15 percent on January 20 to 20,900 per dollar. The VN Index of stocks fell 0.1 percent, its first decline in two weeks. Central bank Governor Nguyen Van Binh said earlier this month that the dong may weaken further in 2012, after it fell 7.4 percent against the dollar last year.

Interest rates

The central bank cut its repurchase rate to 14 percent from 15 percent in July last year after a series of increases to tackle inflation. It raised the refinancing rate to 15 percent by the end of 2011 from 9 percent at the end of 2010.

"The State Bank of Vietnam has continued its tight monetary policy stance through the end of last year, and this has meant less excess liquidity in the system," Deepak Mishra, the World Bank's Hanoi-based lead economist for Vietnam, said in e-mailed comments before the report. "Global commodity prices have stabilized and therefore the risk of externally induced inflation has come down."

Vietnam's inflation is the fastest in a basket of 17 Asia- Pacific economies tracked by Bloomberg, stoked in part by credit growth. Last year, credit through Dec. 21 expanded 11 percent, the State Bank of Vietnam said this month, compared to the 19 percent full-year figure that the IMF had projected in June.

Consumer-price growth in 2012 may be less than 12 percent at worst and 8.5 percent to 9 percent in a "good" scenario, Binh said Jan. 11.

"The government has clearly shifted its policy toward ensuring stability of prices and the currency," Louis Taylor, chief executive for Vietnam at Standard Chartered Plc, said in Ho Chi Minh City earlier this month. "Over the next few months, we're going to see a rapid decline in the headline inflation number."

Gross domestic product in Vietnam, a manufacturing hub for companies such as Intel Corp., grew 5.89 percent in 2011, down from 6.78 percent in 2010.

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