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Factbox-Vietnam measures to reduce double-digit inflation

07-Mar-2008 Intellasia | Reuters | 5:01 AM

Vietnam’s annual inflation rate jumped to 15.67% in February, the highest level in more than 12 years, and it has been in double digits for four months.

A statement on the Communist Party government’s web site late on Tuesday ordered the central bank and other ministries to take the following measures to tackle inflation in 2008 [ID:nHAN337550].

– Expand the trading band over time for the dollar/dong to 2% either side of an official rate set by the central bank. Central bank officials said on Wednesday that this was not for intraday transactions that were still subject to a dollar/dong trading band policy that allowed the currency to move 0.75% either side of the official rate set every day.

– The central bank is to carry out compulsory promissory note sales and consider raising banks’ compulsory reserves.

– The State Bank of Vietnam is to secure liquidity for commercial banks to meet payment needs.

– Credit growth this year will be limited to 30%, after an expansion of more than 40% last year.

– More issues by the government of dong and foreign currency bonds to prevent increasing dollarisation of the economy and withdraw idle cash to reduce inflation, raise national currency reserves or to invest overseas.

In February, the central bank took measures to reduce excess liquidity in order to curb inflation.

The following summarises the State Bank of Vietnam’s moves:

-From February 1 the central bank raised banks’ compulsory reserves to 11% of their dollar and dong deposits of up to 12 months from 10% [ID:nHAN343723].

The reserves required for dong and dollar deposits longer than 12 months rose to 5% from 4%.

-From February 1 the central bank raised its three main interest rates, last changed in December 2005, by up to 1.5 percentage points. The base rate is now 8.75%, up from 8.25% previously [ID:nHAN72657].

-On February 3 the central bank raised the limit on bank loans to stock investors, saying banks can lend a maximum 20% of their registered capital. The ruling replaced the previous limit of 3% of total loans [ID:nHAN85471].

-On February 14 the central bank said it would issue 20.3 trillion dong in Treasury bills that banks are obliged to buy. It set a coupon of 7.8% for the March 17 issue and named 41 buyers of the debt.

-On February 27, in an attempt to stabilise the money market, the central bank said commercial banks must avoid raising interest rates on dong deposits above 12% [ID:nBKK343822].

-Separately, Finance minister Vu Van Ninh was quoted by a Planning and Investment Ministry-run newspaper as saying loans to land speculators must be tightened.


Category: Finance

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