Vietnam raises policy rates to fight inflation

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The State Bank of Vietnam raised a main policy interest rate to 12 percent, boosting borrowing costs for the third time in as many weeks as the government steps up its fight against inflation.

The refinancing rate, one of the main policy tools identified by the central bank last week, was increased from 11 percent effective Tuesday, according to a statement on the central bank's website. The bank also lifted the discount rate to 12 percent from 7 percent.

Vietnam is trying to restrain lending growth and narrow the budget deficit as Prime Minister Nguyen Tan Dung seeks to revive investor confidence.

Inflation is poised to climb from a two-year high as power prices and import costs rise, and the main stock index has fallen 10.6 percent in the past year, partly on concern rate increases will slow the economy.

"The authorities are now acting more aggressively and proactively against inflation," Australia & New Zealand Banking Group Ltd. said in a note after the rate decision. "These moves should help rein in inflation expectations and improve domestic confidence in the recently devalued Vietnamese dong."

Vietnam's monetary tightening is likely to "succeed in keeping inflation within" the government's 7 percent target this year, according to a Moody's Analytics note released Wednesday. Inflation may be "near 10 percent" at the end of the year, ANZ said.

Vietnam may cut its 7 percent-to-7.5 percent economic growth forecast for this year, the Nikkei newspaper cited Nguyen Xuan Phuc, chairman of Vietnam's government office, as saying in an interview in Tokyo on Tuesday.

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