Posted on 14 Dec 2009
Vietnam may keep ‘tight’ policy into 2011, Goldman Sachs says
Vietnam’s central bank may have to maintain “tight” monetary policy into 2011 to keep inflation under control, Goldman Sachs Group Inc. predicted.
The State Bank of Vietnam raised its benchmark interest rate to 8 percent as of December 1 from 7 percent, after keeping borrowing costs unchanged since February. The central bank had previously cut the key rate from 14 percent in October 2008.
Credit expansion and low interest rates helped Vietnamese economic growth recover, Goldman Sachs said in research presented Tuesday in Hong Kong. The central bank is likely to adopt tightening measures next year including more interest-rate increases, wrote Hong Kong-based economist Helen Qiao.
The government wants to “keep inflation at bay,” Qiao wrote. “In 2011, the central bank will probably have to maintain the tightening bias in monetary policy even if domestic demand growth moderates.”
Vietnamese inflation may accelerate until February, the Finance Ministry said in a note distributed last week at a conference in Hanoi. The year-on-year rate, which was 4.35 percent in November, will probably rise to at least 10 percent next year, the International Monetary Fund said last week.
“Inflationary pressures are on the rise,” Qiao wrote.
Vietnam plans to focus “first and foremost” on reducing macroeconomic imbalances in the economy, Prime Minister Nguyen Tan Dung told a conference last week in Hanoi.
Risk of overheating
A government report released at the same conference for a shift “from a loose monetary policy to a cautious, flexible policy, to ensure a reasonable credit growth rate, thus supporting the targets of macroeconomic stability, economic development and inflation prevention.”
There is still a debate within the Vietnamese government on the extent of the risks that the country’s economy may overheat, Goldman Sachs said.
Vietnam’s gross domestic product grew 3.1 percent in the first quarter, the slowest pace on record, before accelerating to a 4.5 percent pace of expansion in the second quarter and 5.8 percent in the third. Goldman Sachs is forecasting 8.2 percent growth next year, exceeding the government’s 6.5 percent target.
Vietnam could pose “a major growth surprise” next year, exceeding expectations, Ho Chi Minh City-based fund manager Dragon Capital said last month, citing in part the weakness of the Vietnamese dong as a boost for companies focusing on exports. Growth figures in 2010 will also benefit from comparison with a low base, Dragon said in a note.
