* Inflation hit highest in over two years in April
* Some economists say rates may now be near peak
* Rate rises will help the dong, steadier of late
(Adds context, quotes)
By John Ruwitch
HANOI, April 29 Vietnam's central bank tightened
credit for the second time in four weeks on Friday, increasing
two policy rates days after the government reported inflation
was at its highest level in over two years, but some economists
said rates may be near a peak.
The State Bank of Vietnam raised the refinance rate by 100
basis points to 14 percent and the discount rate by the same
amount to 13 percent, following increases in the refinance rate
and reverse repo rate on April 1.
The new rates would take effect from May 1, the central bank
Economists said the increases were needed, given the level
of inflation, and would also help buttress the dong ,
which has bucked a three-year trend and strengthened more than 1
percent against the dollar this week on the interbank market.
"The rate hike is in line with our expectations and shows
that the central bank remains focused on controlling inflation.
We believe the rate hike will help build confidence further and
expect the currency to remain stable with a downward bias," said
Prakriti Sofat, regional economist at Barclay's Capital.
Vietnam's government has tightened policy since February by
raising rates and clipping its credit growth target to counter
some of Asia's worst inflation. Consumer prices climbed 17.51
percent in April, the highest since December 2008, official data
showed on Sunday.[ID:nL3E7FP07D]
"This is about where we have rates plateauing in our
forecast based on sequential inflation easing and headline
year-on-year starting to turn down again in the coming months,"
said Yougesh Khatri, an economist at Nomura International (HK)
"While the policy rate may seem low relative to current
inflation the key is that lending rates are significantly
Many economists see inflation continuing to rise into the
third quarter before starting to ease.
NOT THE ONLY SOLUTION
Lending rates are around 19-20 percent and businesses have
been vocal about the difficulties such high rates are creating,
putting pressure on the government.
The government decided this month to grant small and
medium-sized firms a one-year extension to pay taxes.
At a government news conference earlier, deputy central bank
governor Nguyen Dong Tien told reporters he did not think
monetary policy needed to be tightened further, suggesting some
disagreement at senior levels of government.
"Monetary policy is not the only solution," Tien said. "It
needs to be synchronised with other policies like the budget,
prices. Personally, I think monetary policy shouldn't be
tightened any more at the moment."
On Monday, the International Monetary Fund's senior resident
representative in Vietnam, Benedict Bingham, told Reuters
Vietnam was "overdue" for another rate rise to counter inflation
and keep inflationary expectations in check.
Inflation has yet to ease, in part because the authorities
have also imposed double-digit increases in electricity and fuel
prices that economists say are still filtering through.
On Feb. 11 the central bank devalued the dong by 8.5 percent
against the dollar and the government followed up with a series
of measures designed to "de-dollarise" the economy, including
cracking down on the black market , raising dollar
reserve requirements and capping dollar deposit rates on April
The central bank gave no explanation for Friday's increase
in the refinance and discount rates.
The country's monetary policy is in a state of flux. The
reverse repo rate, another rate markets watch closely, was left
unchanged at 13 percent on Friday and the base rate, which used
to be the benchmark, was left at 9 percent.
(Additional reporting by Tran Le Thuy; Editing by Jason Szep
and Alan Raybould)