The US-based JPMorgan Chase Bank has recently said that Vietnam’s latest inflation statistics are “surprising positively”.
In a recently-released report, this bank said that Vietnam’s consumer price index (CPI) rise in June was lower than expected. Particularly, in comparison with the same period last year, Vietnam’s CPI rose by 6.9 percent against the JPMorgan Chase’s forecast level at 7.1 percent and 7.5 percent of experts in general.
According to JPMorgan Chase’s forecast, with stable GDP (gross domestic product) growth rate, inflationary pressures may soon return to increase slightly after declining for a period. However, this bank said that in the case that the world oil prices continue to fall, Vietnam’s inflation rate is completely possible to further fall.
JPMorgan Chase forecasted Vietnam’s inflation would continue to fall in Q3 and Q4 this year whereby by October this year, the CPI will ease down to 4.2 percent year-on-year and then gradually increase again in 2013. For the whole year, JPMorgan Chase said that Vietnam’s inflation would be about 8.1 percent against the level of 18.7 percent in 2011.
According to specialists of JPMorgan Chase, easing inflation will bring in two positive effects.
First, monetary policy may be further loosened to support the weak economy. Due to rapidly decreasing inflation, Vietnam’s real interest rates are at the highest level in recent years despite the 400 point fall of basic rate in the past several months. According to the data from the report, the repo rate (on open market operations-OMO) is actually a real positive interest rate at 2.9 percent instead of the negative level of 7.3 percent in last August, while the repo interest rate is now 10 percent compared with 14 percent in last August.
Second, easing inflation will improve macroeconomic balance and stabilise the balance of payments in Vietnam. The pressure on balance of payments in Vietnam often derives from the short-term capital flows that are inherently sensitive to inflation because people easily move capital between US dollar, dong and gold. If inflation is low, capital flows will continue to flow into assets in dong. According to the official statements, Vietnam’s foreign currency reserves this year increase for the first time after many years. JPMorgan Chase predicted this foreign currency reserve levels also continue to increase in the future.