Vietnam says inflation may surge; officials weaken exchange rate

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Vietnamese inflation may jump and the priority is to curb it, the Communist Party said as Asia's fastest consumer-price growth adds pressure on the dong.

Inflation is "at risk of surging," Communist Party General Secretary Nguyen Phu Trong said in the text of a speech posted on the government's website Monday. Vietnam will prioritize fighting price gains while targeting "suitable growth" in the first few years of the 2011-2015 period, the party's Central Committee said separately Monday.

Vietnam's central bank raised a key interest rate last week for the first time since May as it struggles to quell inflation of more than 22 percent and steady the dong. The nation has found it difficult to follow through on commitments to tighten monetary policy and has historically prioritized economic growth over inflation, according to HSBC Holdings Plc.

"The rate hike last week was an attempt to try to contain pressure on the local currency more than a strong commitment to fight inflation," said Santitarn Sathirathai, an economist at Credit Suisse AG in Singapore. "If the pressure on the currency eases, they may still reverse course."

The State Bank of Vietnam weakened the dong's reference exchange rate Tuesday for the fourth time this month, fixing it at 20,668 per dollar from 20,653 on Monday.

The currency weakened 0.1 percent to 20,870 per dollar as of 11:02 a.m. local time on Tuesday, according to data compiled by Bloomberg. It was devalued for the fourth time in 15 months on Feb. 11, by about 7 percent. The benchmark VN Index of stocks fell 0.5 percent.

Consumer prices

Consumer prices climbed 22.42 percent in September from a year earlier, compared with 23.02 percent in August. That's the fastest pace in a basket of 17 Asian economies tracked by Bloomberg. Elevated inflation has fanned demand for gold and dollars as a store of value.

The State Bank of Vietnam raised its refinancing rate to 15 percent from 14 percent last week. The move took effect on Monday.

Vietnam's foreign-exchange reserves are still "thin" and there remains considerable pressure on the nation's currency, Trong also said. The country is forecasting economic growth of 5.8 percent to 6 percent this year, he said.

The main tasks over the next five years are restructurings of public investments, the financial markets and state-owned enterprises, Trong said. Vietnam will merge or consolidate smaller commercial banks and financial institutions to ensure liquidity and strengthen the banking system, he said.

Vietnam will aim for faster economic growth in the final years of the 2011-2015 period if conditions are favorable, the Central Committee also said in its statement on Monday.

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