Vietnamese inflation rate declines for second straight month

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Vietnamese inflation slowed for a second month in May, giving policy makers room to spur growth by boosting credit and encouraging market interest rates to fall.

Consumer prices climbed 9.05 percent in May from a year earlier, according to figures from the General Statistics Office in Hanoi Monday. The inflation rate in April was 9.23 percent. Prices rose 0.27 percent in May from the previous month.

Vietnamese inflation has begun to ease, partly due to slower credit growth and cheaper rice, with Deputy Prime Minister Nguyen Sinh Hung saying May 20 that price gains are under control.

That may make it easier for the country's banks to follow government requests to reduce lending rates and allow the pace of economic expansion to accelerate.

"Recent concerns about a return of high inflation in 2010 have been tempered a little," Vietnam Holding Asset Management Ltd. said in a note this month. "Food prices in particular have declined, thereby offsetting rises in construction materials, steel and transportation costs."

Vietnam needs to slow inflation to a maximum of 6 percent to glean benefits from having a weaker currency, the United Nations said this month.

The government devalued the dong in November and again in February with the currency currently trading at 18,985 per dollar, compared with 17,886 before the first devaluation.

Rebounding growth

Rebounding growth, rising input costs and the risk of further dong depreciation may spur Vietnamese inflation in 2010, Citigroup Inc. said this month, in a research note that also said the government's monetary-policy credibility is threatened as it shows a reluctance to tighten policy while still pledging to contain inflation.

The Vietnamese central bank's benchmark interest rate has been kept unchanged at 8 percent since December, and Deputy Prime Minister Hung last week called for market lending costs to be reduced.

The removal of a link with the benchmark pushed market rates up to as high as 18 percent, HSBC Holdings Plc said in April. The Vietnamese government this month called for bringing lending rates down to about 12 percent, according to Citigroup.

The Southeast Asian nation's economy expanded 5.8 percent in the first quarter, up from 3.1 percent in the same period a year earlier and accelerating from a full-year growth rate of 5.3 percent in 2009.

Overall food prices rose 9.23 percent in May from a year earlier, compared with a 9.56 percent pace in April. Costs in the sub-component including rice increased 9.04 percent, after gaining 10.06 percent in April.

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