RPT-ADB sees room for Vietnam rate hike as inflation set to slow

Tue Jun 14, 2011 2:40am EDT

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By John Ruwitch

HANOI, June 14 (Reuters) - The Asian Development Bank sees a bit of room left for policy rate hikes in Vietnam, but expects monthly inflation to start to come down this month and double-digit annual inflation to begin to ease in August.

Vietnam has been grappling with some of the highest inflation in the world. It has ratcheted up key interest rates since late last year and pledged a raft of other measures, including lower credit and money supply growth and fiscal tightening.

Still, the consumer price index rose to 19.8 percent in May from the same month last year.

"We expect that at least at the monthly level the inflation rate will start coming down from this month," Ayumi Konishi, the ADB's country representative in Vietnam, told reporters on Tuesday.

"The only thing is that last year the base numbers, monthly inflation between April to August, were very low. So even the slightest increase in the monthly rate will still keep pushing the year-on-year inflation rate up until August."

Asked if there was scope for further interest rate hikes, Konishi said: "Some of them I think can still be tightened a little more, but not much."

"How far interest rates should really be tightened all depends on how far the inflation rate, the inflation situation will aggregate further," he said.

The State Bank of Vietnam has increased the reverse-repurchase rate for seven-day open market operations by 800 basis points to 15 percent since November, and has also lifted the refinance rate and discount rates by several hundred basis points since February.

Inflation remains a problem, though, and analysts have been calling for the government to be more aggressive in pursuing its pledges to rein in state spending.

"Monetary policy alone cannot solve the problem. That's for sure," Konishi said.

"So the combination of fiscal measures I think is important... On the fiscal side I think the effort has got to be stepped up."

The International Monetary Fund last week delivered a similar message at a meeting of donors and the Vietnamese government, saying further policy rate hikes could be necessary and authorities should enhance fiscal support for the monetary tightening already under way.

Central bank deputy governor Nguyen Van Binh said the State Bank of Vietnam must raise rates further if "very high" inflation persists. (Reporting by John Ruwitch; Editing by Richard Borsuk)

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