Inflation and exchange rates: two hot issues in 2011

Exchange rates and inflation will continue to be two burning issues for Vietnamese macroeconomics in 2011, the local newswire Sai Gon Tiep Thi reported February 16, citing senior officials in a recent meeting.

“The problem of exchange rates will put pressures on other balances and on inflation”, said Vu Viet Ngoan, Vice Chairman of the National Assembly’s Economic Committee on February 15.

“Inflation pressures this year will be higher than in 2010”.

The exchange rate adjustments must be in time, otherwise expectations on exchange rates will hamper the market sentiment.

Adjustments in prices of electricity, coal, petroleum and gas … in the coming time might have minor effect on the Consumer Price Index but affect considerably to the public’s sentiment. Therefore, Government must take drastic measures to keep it in check.

Nguyen Duc Kien, a standing member of the NA’s economic committee said “ A new level of prices will likely be set up when prices of electricity, gas, … are adjusted, boosting up the input costs of local enterprises”.

Kien shared the same view point with Ngoan about a higher inflation this year, adding that “causing factors of inflation have lately arisen as many local authorities spent a lot of money to “stabilize prices” while actually manipulate market prices”.

The SBV on November 11 devaluated the domestic currency, the dong to 20,693 from 19,932 while narrowed the trading band for the dong to 1% from 3% on either side of a midpoint set by the central bank daily.

The move wasn’t made in November last year (when dollar tension incurred in October) because of concerns over inflation in the run-up to the Lunar New Year, the central bank’s Governor Nguyen Van Giau reasoned, adding that the dong was devalued by 7% instead of 9% as written by the press.

The Governor greed with warnings by IMF and World Bank that Vietnam needs a “broader set of policies” to restore macroeconomic stability including containing public debt, curb budget deficit , annually reporting foreign debts to the National Assembly, applying international auditing standards, enhancing restructuring state-owned enterprises, etc. – Stoxplus.com

Tags: exchange rates, Inflation