Vietnam must avoid premature easing of policy, IMF says

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Vietnam may undermine efforts to stabilize the country's economy and currency if it prematurely eases monetary policy, the International Monetary Fund said, as the nation fights the fastest inflation in Asia.

"The risk is that all the hard work they've done this year in trying to re-establish their stabilization credentials and to try to convince the population that they have the discipline needed to push through with the macro stabilization program gets undone," Benedict Bingham, the IMF's senior resident representative in Vietnam, said in an interview Tuesday.

At stake is Vietnam's struggle to regain investor confidence hurt by inflation that's exceeded 20 percent, a widening trade deficit and the near-bankruptcy of the nation's largest shipbuilder, which signaled risks in the banking industry. Its currency is Asia's weakest performer against the dollar this year after India's rupee.

Vietnam in February passed the so-called Resolution 11, which aimed to fight consumer-price growth and support the currency with tighter monetary and fiscal policies, and Bingham said that economic stabilization program isn't complete yet.

"There mustn't be a gap between the headline policy message that they're committed to maintaining this strategy until the job is done, and the actual implementation of monetary policy," Bingham said in Ho Chi Minh City. "People will pick these signs up, and raise questions about the strategy."

The central bank earlier this year raised its discount, refinancing and repurchase rates in a bid to stem credit growth, check inflation and steady the economy.

In July, the State Bank of Vietnam bank cut its repurchase rate to 14 percent from 15 percent, and the following month it began pushing commercial lenders to lower their interest rates.

Policy easing

The central bank will leave interest rates unchanged for now and consider cutting them if price gains slow, the government said in August.

The moves to ease monetary conditions echo efforts in recent months by emerging markets from the Philippines to Brazil to leave rates unchanged or cut borrowing costs, as Europe's debt crisis and the risk of a US contraction dim the outlook for the world economy.

Overnight interbank rates, which the central bank can influence through the supply of liquidity, are about 12 percent to 13 percent, Bingham said.

"The central bank's open-market operations have left the banking system with an overnight rate below policy rates," he said.

Vietnamese consumer prices rose 22.42 percent in September from a year earlier, slowing from a 23.02 percent pace in the previous month while remaining the fastest inflation rate in a basket of 17 Asian economies tracked by Bloomberg.

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