Low CPI increase in January brings hope

The 10-year record low inflation rate in January has arisen a hope among businesses that the lending interest rates would go down, and business’ difficulties would be eased.

CPI increases only by one percent in January 15, 2012

NDHMoney has predicted that the consumer price index CPI in January 2012 would increase only by one percent over the previous month.

If the scenario turns true, the CPI in January would see a record low increase if compared with the months just before Tet of the last 10 years. The lowest CPI increase recorded ever was in February 2009 – by 1.17 percent over the previous month. Meanwhile, other years saw the sharp CPI increases of two or three percent.

This has raised a high hope that Vietnam is capable to curb the inflation rate in 2012 at nine percent. In principle, the CPI increase most sharply in the months just before and after Tet. Therefore, if the CPI increases are not too sharp on these months, one would have every reason to believe that the inflation rate of the whole year would be not overly high.

The CPI in the months just before and after Tet bear big influences from the prices of food, foodstuff and transport fee. However, there have been signs showing that the supply of food and foodstuff for Tet is profuse. A lot of goods have stable prices. Especially, the prices pork and rice have been decreasing.

Analysts have predicted that the demand on Tet holiday would decrease sharply in the context of the high inflation and people have to fasten their belt. Businesses, which incurred loss in 2011, have given low Tet bonuses to their staff, which means that people do not have much money to go shopping. The volume of money to be spent by employees and workers would be lower than the previous years.

Meanwhile, in an effort to curb the inflation, Governor of the State Bank of Vietnam Nguyen Van Binh has informed that the State Bank would keep the volume of money in circulation at a reasonable level.

Interest rates will go down?

The thing that businesses now expect most is the lending interest rate decrease. And now they have more reasons to expect this, as the CPI increase in January was very low at one percent.

However, businesses have been told that they should not be too optimistic. It is now the first quarter of 2012 already, while there has been no sign showing that the interest rates would go down in a near future.

In a recent statement, the head of the State Bank of Vietnam said that he would consider the liquidity situation of the commercial banks to make decisions on whether to slash interest rates.

The statement proves to go contrary to the previous prediction that the interest rates would be adjusted after considering the inflation rate.

Commercial banks have given different reports about their liquidity. However, the weak liquidity has been faced by only a few of banks. Meanwhile, big banks still have profuse capital.

The only thing that businesses can do now is to wait and hope. The government has instructed the central bank to slash the interest rates. However, the central bank still has been trying to restrict the credit growth rate and money supply (M2) at low levels, at 15-17 and 14-16 percent, respectively. As such, the supply remains at low level, and the demand remains high.

In the last 10 years, the annual credit growth rate was 29.4 percent, while it was 33 percent in the last few years. Therefore, once the growth rate is curbed at less than 20 percent, it is understandable that at least 10 percent of businesses cannot access bank loans.

Tags: Vietnam CPI 2012, Vietnam economic, Vietnam economic growth, Vietnam economy, Vietnam economy 2012