Investment to savings ratio major cause of inflation

Vietnam’s investment to savings ratio is among the main causes for the country’s inflation, said Minister, Chairman of the Office of the Government, Vu Duc Dam.

At the press conference for Government’s regular meeting on September 26, Dam said the Government had assigned the Ministry of Planning and Investment, the Ministry of Finance and the State Bank of Vietnam to conduct independent studies to identify the causes for rising inflation.

According to him, the number one reason was investment outstripping savings. He said that this tend towards heavy investment has resulted in high credit growth, of 30% per year, compared to the average level of 20% in other countries.

In order to accommodate all this investment, the nation relies on many imports, which, in turn, adds to the trade deficit, Dam said. Also, the total value of imports amounts to 80% of the GDP, he added.

Another leading reason, he said, is ineffective capital management for investments.

He added, however, that there is also a psychological element at work. “When people see high and long-term inflation, they begin to lose confidence in the VND, as well as the Government’s ability to control it. This also leads to higher prices,” Dam said.

He was optimistic about the macro-economic situation for the first nine months of this year and forecast a growth in GDP of around 6% by the end of the year.

September’s CPI increased by 0.82% against August, the sharpest rise over the past 13 months. According to Dam, the rise would have been just 0.3% without the large increases in the cost of educational materials.

The Vietnamese Government will attempt to keep inflation rate at 18% in 2011, lower than the forecast of 18.7% by the Asian Development Bank (ADB) and International Monetary Fund (IMF).

Source DTINews

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial