Inflation rates have reached a frightening level in Vietnam after extra currency flooded the market causing the domestic demand to shoot up. The devaluation of the Dong (national currency of Vietnam) did not help either. The current inflation rate in Vietnam is the highest in the last 22 months.
The Vietnam General Statistics Office informs that the inflation in December 2010 is the highest since Feb 2009. The increase in prices has been 11.75% compared to Dec 2009. Cost of things has increased compared to even last month. According to International Monetary Fund (IMF), Vietnam should aim for an inflation rate of 3%-4%.
The Vietnam government is trying to combat inflation without much effect. The Dong is way too weak and cost of food is way too high for the government to control the situation within a short span of time. The government is also reluctant to check inflation by enhancing the reserves of commercial banks (which would bring down the supply of money via open market operations). It was initially not too keen to raise the interest rates either. Under much pressure, the Vietnam government raised the interest rate in November this year.
Experts opine that to stabilize the prices, Vietnam needs to check the growth rate. However, the Vietnam government declared that the growth rate will be 6.7% this year and might reach 7% in the coming year. The experts also think that the inflation problem is inextricably linked to the domestic policies of the country. They particularly refer to the channelization of additional currency into the market through various sources.
The inflation problem in Vietnam poses a major threat to the financial institutions in general and banking industry in particular. It also increases the chances of an economic shock. Consequently, the currency rating of the Dong with financial services companies has fallen. Standard and Poor’s, for instance, currently rates the Dong as BB- while the previous rating was BB.
The devaluation of the Dong is playing a major role in the inflation process. The value of the Dong has been depreciated by the Vietnam government three times in the last one and half years. Last week 1 dollar was equal to approximately 20,000 Dong. Incredible, isn’t it?
www.vietnameconomy.net
The Vietnam General Statistics Office informs that the inflation in December 2010 is the highest since Feb 2009. The increase in prices has been 11.75% compared to Dec 2009. Cost of things has increased compared to even last month. According to International Monetary Fund (IMF), Vietnam should aim for an inflation rate of 3%-4%.
The Vietnam government is trying to combat inflation without much effect. The Dong is way too weak and cost of food is way too high for the government to control the situation within a short span of time. The government is also reluctant to check inflation by enhancing the reserves of commercial banks (which would bring down the supply of money via open market operations). It was initially not too keen to raise the interest rates either. Under much pressure, the Vietnam government raised the interest rate in November this year.
Experts opine that to stabilize the prices, Vietnam needs to check the growth rate. However, the Vietnam government declared that the growth rate will be 6.7% this year and might reach 7% in the coming year. The experts also think that the inflation problem is inextricably linked to the domestic policies of the country. They particularly refer to the channelization of additional currency into the market through various sources.
The inflation problem in Vietnam poses a major threat to the financial institutions in general and banking industry in particular. It also increases the chances of an economic shock. Consequently, the currency rating of the Dong with financial services companies has fallen. Standard and Poor’s, for instance, currently rates the Dong as BB- while the previous rating was BB.
The devaluation of the Dong is playing a major role in the inflation process. The value of the Dong has been depreciated by the Vietnam government three times in the last one and half years. Last week 1 dollar was equal to approximately 20,000 Dong. Incredible, isn’t it?
www.vietnameconomy.net
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