IMF cuts Vietnam’s inflation forecast to 9.5pct in 2011

International Monetary Fund (IMF) has cut its forecast on Vietnam’s inflation down to 9.5 percent in 2011, according to its regional economic outlook that has been released recently.

Earlier, on April 11, the IMF stated in its world economic outlook that Vietnam’s inflation was forecast at 13.5 percent in 2011.

According to IMF’s regional economic outlook, Vietnam has overcome the global crisis thanks to the substantial financial stimulus package worth 5 percent of its GDP and monetary easing policies.

The IMF commented that Vietnam is one of the fastest growing economies in Asia. In 2010, Vietnam posted a growth of 6.8 percent thanks to demand for both domestic and international growth.

However, the expansion policy adopted during the crisis also has increased macroeconomic risks.

In its report, IMF said that although most of the financial incentives expired in 2009, the monetary policy is still continuing in effect.

Credit growth in Vietnam was still high in 2010, inflation increased and exchange rate and foreign reserves were under pressure. Market confidence has deteriorated, exacerbated by the lack of stability in government policies.

From the beginning of this year, the government of Vietnam has launched a series of policies to control inflation and increase foreign currency for the financial system. Particularly, the tight monetary policy aims to reduce credit growth to below 20 percent. In addition, the central bank also increased the refinancing rate and interest rates on open market operations (OMO).

In March, Vietnam’s inflation rose 13.9 percent over the previous year, marking the highest level in 24 months and higher than the other Asean economies’.

Core inflation (excluding volatile food and fuel prices) increased by 9.8 percent over the previous year. This index is influenced by commodity prices, rising world food, while import prices increased due to rising exchange rates and expanding credit growth in Vietnam.

IMF said that Vietnam’s economic prospects in 2011 depend heavily on whether the new policy has succeeded in restoring the confidence of local and foreign investors. Implementing the decisions consistently and stably is critical to reducing inflation, building confidence and strengthening the position of Vietnam.

Also, according to IMF, the government of Vietnam should be ready to carry out further policy tightening if required. If macroeconomic policies are implemented widely, Vietnam’s economic prospects will be very favourable in 2011. Economic growth is expected to reach 6.25 percent, while inflation is expected at 9.5 percent in late 2011, then foreign reserves will increase.

Earlier, in the World Economic Outlook 2011 published by the IMF on April 11, this organisation forecasted that Vietnam’s economic growth this year would be 6.3 percent and annual inflation of 13.5 percent. – IMF

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