Vietnam's October inflation slows for second straight month

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Vietnamese inflation slowed for a second month, an easing that may reduce pressure on the central bank to further increase interest rates.

Consumer prices rose 21.59 percent in October from a year earlier, according to data released by the General Statistics Office in Hanoi Monday. The inflation rate fell to 22.42 percent last month after reaching the highest level in more than two years in August. Prices climbed 0.36 percent this month from September.

The central bank raised its refinancing rate this month to 15 percent from 14 percent, boosting a rate that started the year at 9 percent as the country sought to regain investor confidence hurt by inflation, a trade deficit and risks in the banking sector. The International Monetary Fund said after the move that Vietnam may have to "further tighten" monetary conditions until inflation expectations are under control.

"It's a pretty good number, and it now looks like inflation could get down to about 20 percent at the end of the year," said Matt Hildebrandt, a Singapore-based economist at JPMorgan Chase & Co. "It's less crucial that they raise rates further than that they maintain the tightening policy that they've already implemented, such as slower credit and money- supply growth."

In February, the Vietnamese government put in place a series of measures known as Resolution 11 aimed at fighting inflation and stabilizing the Vietnamese dong. Among the measures were commitments to slow credit and money-supply growth.

Resolution 11

The recent slowdown in inflation demonstrates that Resolution 11 is working, Vietnamese Deputy Minister of Planning & Investment Dang Huy Dong said Oct. 19 at a conference in Ho Chi Minh City.

"The implementation of Resolution 11 will be continued until we bring macroeconomic indicators back to normal," Dong said. That means "inflation will have to be brought down to a single digit, gradually."

Still, while inflation may ease to 9 percent by the end of next year, economic growth may slow next year to 4.8 percent from 5.7 percent in 2011 amid weakening exports and foreign investment, according to Anthony Nafte, an economist at CLSA Asia-Pacific Markets.

"The risk is that reform will be ditched if the economy slows," Nafte wrote in a research note this month. "Will the policy priority revert to achieving 6 percent-plus GDP growth at the expense of renewed inflation and exchange-rate destabilization?"

The central bank's refinancing rate increase was targeted both at fighting inflation and at easing pressure on the Vietnamese dong, according to U.K.-based Capital Economics. On the free market the currency traded at 21,775 per dollar on Oct. 21, according to Viet Capital Securities, compared with an official rate of 20,992.

"Price pressures should continue to ease next year, but we still expect inflation to be in double-digits," Capital Economics said on Oct. 21. "More policy tightening is likely."

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