Vietnam should hold rates for now, have 'flexible' monetary policy -govt

HANOI Fri Aug 26, 2011 1:38am EDT

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HANOI Aug 26 (Reuters) - Vietnam's central bank should hold policy rates for now and deploy monetary tools "flexibly" the rest of 2011 to trim price pressures, but it needs to try to lower interest rates as inflation eases, Deputy Prime Minister Vu Van Ninh said.

His views were reported on official websites on Friday, the day after Ninh met senior central bank officials and two days after the government announced that annual inflation hit 23 percent in August.

High inflation is one of Vietnam's biggest economic problems. August was the 12th consecutive month in which the annual inflation rate rose.

Separately, an editorial on Friday in the ruling Communist Party's mouthpiece newspaper, Nhan Dan, said now was not the time for Vietnam to loosen monetary policy.

Economists say inflation momentum has begun to ease and the level may have reached a peak.

Ninh, a former finance minister, was quoted by the government website as saying policy rates should be unchanged for now.

A statement on the State Bank of Vietnam (SBV) website quoted Ninh as saying the central bank should "continue to use monetary tools flexibly and effectively to decrease inflationary pressures and lower interest rates gradually in line with changes in the inflation rate.

Paraphrasing Ninh, it said one of the central bank's most important tasks the rest of 2001 is "to continue to manage monetary policy in a way that is flexible, prudent and cautious."

TO STRIVE FOR SINGLE-DIGIT INFLATION

An account of Thursday's meeting on the government website quoted new State Bank Governor Nguyen Van Binh as saying the central bank would strive for single-digit inflation next year.

The Asian Development Bank in April said its projection for inflation in Vietnam next year was 6.8 percent. In June, the International Monetary Fund said it expected CPI to be 6.2 percent at the end of 2012.

Analysts say pressure will undoubtedly rise on the government to lower interest rates as inflation turns a corner because companies and banks have already been vocal about the difficulties they are facing with soaring interest rates.

Binh reiterated his pledge to try to bring commercial lending rates down, a move that some economists say is likely to stoke inflation.

The central bank raised the refinance rate five times between November last year and this May, to 14 percent from 8 percent. The reverse repurchase rate for 7-day open-market operations was hiked to 15 percent from 7 percent in the same period. In July it lowered the OMO rate to 14 percent.

The newspaper Nhan Dan said policymakers should stick with their monetary policy choices.

"This is the time when these monetary policies are starting to bear fruit," it said.

"Monetary policy should not be loosened, and if it is loosened then inflation will return," it said in the front-page editorial.

(Additional reporting by Ho Binh Minh; Editing by Richard Borsuk)

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