Vietnam overdue for rate hike to fight inflation: IMF

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Vietnam is "overdue" for again raising its interest rates because of the country's high pace of inflation, an International Monetary Fund official said on Monday.

Benedict Bingham, IMF resident representative for Vietnam, said the State Bank of Vietnam (SBV), the central bank, should move "to ensure that inflation expectations don't become entrenched and put pressure on the dong."

"With inflation over 17 percent and SBV's policy rates at 13 percent, another increase in policy rates is now overdue. Maintaining a cap on deposit rates at 14 percent is also counterproductive," Bingham wrote in response to a question from Reuters.

Bingham's comment came a day after Vietnam said that annual inflation in April was 17.51 percent -- the highest level since December 2008 -- while on an monthly basis, inflation was 3.32 percent higher in April than March. That was the biggest month-on-month increase since May 2008.

Also on Monday, a government official said there was "much possibility" the April figure will be the "peak" for this year.

A government statement quoted Nguyen Duc Thang, head of the government's General Statistics Office's Price Statistics Department, as citing only the latest month-on-month increase, but did not make clear if he meant it or the year-on-year pace in April would be a peak for 2011.

Thang said the April number was high because of two increases in fuel-prices and a March rise in electricity prices.

"In the next months, CPI could still rise but the pace will slow when the government's policies on inflation control and stabilising the macro economy have better effect," he said in the statement.

The statement, which said that monetary policies take time to take effect, did not make clear if any further specific measures would be applied to help arrest the price rise.

Asked if the central bank would make any changes to its monetary policies to response to the price hike this month, governor Nguyen Van Giau declined comments.

JP Morgan Chase Bank has said in a report that it expects inflation to peak at 22 percent year-on-year in August and average 18 percent for 2011.

On April 1, Vietname raised its reverse repurchase rate by one percentage point, to 13 percent. The repo rate, which bankers said the central bank now treats as a benchmark, was 7 percent in early November 2010.

Economists said Vietnam needs to find ways to tighten monetary policy further without causing a spike in interest rates that chokes business.

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