Push for growth hurts Vietnam dong
Push for growth hurts Vietnam dong
http://www.ft.com/cms/s/0/578cd696-e...44feabdc0.html
Fears of a global currency war are likely to feature high on the agenda at the Asian leaders’ summit that opens in Hanoi today, but the host nation faces a different economic problem.
Political pressure to maintain growth in Vietnam is trumping worries about the money supply. The result is that inflation is nearly back to double digits, the Vietnamese currency is under severe pressure and people are snapping up dollars and gold.
But the Communist government, which started easing monetary policy in 2009 in an attempt to maintain economic growth in the wake of the global financial crisis, is reluctant to tighten credit ahead of a Communist party congress in January for fear that the growth rate slips or cumbersome state-owned enterprises start to collapse.
Consequently, inflation, which peaked at 28 per cent in August 2008 as Vietnam’s economy overheated, is approaching double figures once more and the dong is trading at a low against the dollar in the black market.
“We are worried because prices are increasing suddenly,” said Le Thi Luon, who runs a food stall in Hanoi’s old quarter. She said the price of some fruit and vegetables had gone up by as much as 5 per cent in the past month and the floods in central Vietnam, which have devastated some crops, could make the situation worse.
Other south-east Asian currencies such as the Thai baht and the Singapore dollar have been appreciating against the US dollar this year as hot money has flowed into their economies.
By contrast, Vietnam’s central bank has devalued the dong three times against the dollar since last November but has failed to stem concerns about the country’s macroeconomic stability.
“You have to devalue the currency or put up interest rates but heading into the party congress, the government is fixated on growth numbers, not prices,” said Jonathan Pincus, a former UN economist and head of the Fulbright economics teaching programme in Ho Chi Minh City. “If they want to push for growth, they run the risk of a sudden change of sentiment and a run on the dong.”
Consumer prices rose 1.05 per cent between September and October, with inflation accelerating to 9.66 per cent year-on-year in October, according to Vietnam’s general statistics office. Although the government has raised the spectre of price controls on essential goods, economists believe it will be difficult for the country to meet its annual inflation target of 8 per cent.
On Wednesday, the dong touched a record low against the dollar in the gold shops on Ha Trung street, central Hanoi, which double as black market foreign exchange bureaux.
One dealer who did not want to be identified said dollars were in relatively short supply as some people were hoarding hard currency. She was selling dollars at 20,300 dong each, compared with the official exchange rate of 19,495 and the interbank rate of 19,500.
Soaring prices of global commodities, such as cotton and wheat, have not helped. Duong Bich Hang, who runs a bedding store in Hanoi, said the cost of cotton sheets has risen more than 10 per cent during the past two months. “When the price goes up like this, there are fewer buyers,” she said.
Large companies are also being squeezed. Phan Van Thien, deputy chief executive of Bibica, one of Vietnam’s biggest confectionery makers, said the cost of sugar and some other ingredients had risen by up to 80 per cent over the past year, driven by heady global prices and the declining dong. That has forced the Ho Chi Minh City-based company to cut its annual turnover and profit targets by 10 per cent.
Economists expect the pressures on both prices and the dong to increase in the run-up to the Tet lunar new year festival in February because demand among shoppers typically rises and companies need dollars to build their inventories of imported goods.
Last week, Nguyen Van Giau, Vietnam’s central bank governor, said there were no plans to devalue the dong again. But he made similar comments around the same time last year, just before the latest devaluations began.
Vietnam Central Bank Raises Benchmark Rate for First Time in Almost a Year
Vietnam Central Bank Raises Benchmark Rate for First Time in Almost a Year
http://www.bloomberg.com/news/2010-1...st-a-year.html
Quote:
Vietnam raised interest rates for the first time in almost a year after inflation accelerated to a 19-month high last month, joining regional counterparts from Malaysia to Thailand that have raised borrowing costs this year.
The so-called base rate increases to 9 percent today, the State Bank of Vietnam said in a statement on its website, announcing its first boost to the benchmark since December. The refinancing rate will rise to 9 percent from 8 percent, while the discount rate rises the same amount, to 7 percent.
Quote:
Vietnam is unlikely to meet its inflation target and the dong will probably be devalued again in the first quarter of 2011, London-based Kevin Grice, an economist at Capital Economics, said in a note this week.