No rate change seen despite rising prices

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Báo Tuổi Trẻ English - 48 month(s) ago 2 readings

Vietnam is likely to keep its policy interest rate and exchange rate unchanged ahead of the Tet holiday next week, even though annual inflation exceeded 12 percent in January, bankers and analysts said on Monday.

The government's statistics office said on Monday the consumer price index rose 1.74 percent in January from December, and 12.17 percent from a year earlier, the highest annual reading since February 2009.

December's annual inflation rate stood at 11.75 percent, and monthly inflation hit 1.98 percent.

Prices traditionally rise around the turn of the year because of increased consumer spending ahead of the Lunar New Year festival, or Tet, Vietnam's biggest holiday.

The new lunar year starts on February 3 this year but the whole period from Monday, January 31 to Monday, February 7 inclusive is a holiday.

"Given the current situation in the market and with CPI expected below last month's level, I think the central bank will keep the base rate and foreign exchange rate stable at least through Tet," said Tong Minh Tuan, manager of economic analysis at BIDV Securities Co.

Tuan had expected the monthly CPI rise to ease slightly more than it did this month to 1.5-1.6 percent.

Seasonally adjusted, January's monthly figure was 1.5 percent and JP Morgan economist Matt Hildebrandt noted that it was the lowest gain since August.

Bao Viet Securities Co said pre-Tet preparations and the impact of a cold spell in northern provinces that has killed cattle would keep prices high, but it said in a report it did not expect any major move from the central bank to adjust monetary policy this month.

Food, foodstuff and drinks, which make up about 40 percent of Vietnam's price basket, rose 16.6 percent in January. The education component, which makes up almost 6 percent of the weighting, leapt 22.5 percent.

A treasury manager at a big Hanoi-based bank said there was little chance of the State Bank of Vietnam changing its policies ahead of Tet.

Inflationary pressures meant it couldn't cut rates, she said.

"But the central bank can't raise rates further, either, because they have been high a while and another rate hike may deliver a blow to small and medium-sized enterprises."

Half of the eight institutions in a Reuters poll this month expected the central bank to keep its base rate unchanged at 9 percent in the first quarter, while the other half thought it would be increased to 10 percent.

Steps by banks to raise dollar deposit rates over the past few weeks signaled expectation the official foreign exchange rate would be held stable, too, Tuan from BIDV Securities Co said.

"The exchange rate used to make up for the gap between dong and dollar rates. Now, since the banks' expectations of any exchange rate adjustment are low, they need to raise dollar rates to attract depositors," he said.

A government official said in early November that the dong/dollar rate would not be changed until after Tet at the earliest.

But with the currency trading on the unofficial market about 7 percent weaker than its state-mandated band, many traders expect the central bank to adjust the official rate, now that the five-yearly congress of the ruling Communist Party has ended.

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