Vietnam Signals Cuts in Interest Rates as Asia’s Fastest Inflation Eases

Vietnam signaled that it may cut policy interest rates to “more suitable” levels after the first quarter and weaken the dong this year as Asia’s fastest inflation eases.

Vietnam faces a trade deficit, risks in the banking sector and slowing economic growth as the global recovery falters. While Indonesia and Thailand have cut borrowing costs in recent weeks to shield expansion, the World Bank and International Monetary Fund said last month Vietnam may undermine progress toward economic stability if it loosens monetary policy too soon.

“Based on recent policy statements they’ve made and the fact that inflation is slowing and growth is weakening, and given the pressures they’re under, I would be 99 percent sure that he meant that the next adjustment in rates would be down,”Gareth Leather, a London-based economist at Capital Economics, said after Binh’s comments.

Vietnam needs to show credibility by sustaining stabilization efforts, Victoria Kwakwa, the World Bank’s country director in the nation, said on 10 January in an interview in Hanoi.

Weakening Currency

Consumer-price growth in 2012 may be less than 12 percent at worst and 8.5 percent to 9 percent in a “good” scenario, Binh said at an economic conference yesterday in the capital, compared with 18.13 percent in December.

Vietnam’s dong weakened 7.4 percent against the dollar last year, including a devaluation of about 7 percent in February. The currency climbed 0.1 percent to 21,013 per dollar on 10 January. The VN Index (VNINDEX) of stocks closed up 0.8 percent.

Purchases of dollars and gold by Vietnamese seeking stores of value have put pressure on the dong. Binh said the currency will gradually depreciate 2 percent to 3 percent this year.

The nation will also focus in the first quarter on easing bank liquidity challenges, including through restructuring five to eight lenders, Binh said.