Rising CPI breaks the double digit barrier

Consumers are increasingly seeing evidence of inflation on goods’ prices

The index growth accelerated from 11.1 per cent year-on-year in November to 11.75 per cent in December, 2010, consigning the government’s 8 per cent target to the rubbish bin.

On a monthly basis, the CPI rose by 1.98 per cent month-on-month in the last month of 2010. In particular, food prices, the most weighted factor, are still surging and showing no signs of a slowdown with an acceleration pace of 16.2 per cent against the end of 2009.

HSBC’s ASEAN regional economist Sherman Chan said inflation risks were tilted on the upside and given the government’s target of 7 per cent for 2011, more efforts were required to rein in price rising pressures.  

“Monetary tightening is needed to rein in inflationary pressures. However, this is not a done deal. The authorities seem to be still tossing between boosting growth and curbing inflation,” Chan said.

“Recent policy actions suggest that there is still a bias towards growth,” Chan added.

Recent policy changes have sent mixed signals to the market. The 1 per cent base rate hike in early November was labelled as a step in the direction towards controlling inflation and import demand.

However, the authority seems again to be  holding back from further policy tightening.

In mid-December, the State Bank’s governor chaired a meeting with members of the Vietnam Banking Association (VNBA) where they discussed the banking market situation.

Upon this meeting, general directors of domestic commercial banks reached the consensus to set deposit interest rates within 14 per cent per year.

“To some extent, this is not applicable to the market,” said a Vietcombank executive.

 “Smaller banks should be allowed to set deposit rates higher than bigger banks with better credibility. I think setting a maximum rate like this, smaller bank still have to seek other ways to add more interest rates to the depositors,” said the executive.

In early December, local banks fired a race to hike deposit rate. Techcombank made the first move to lift maximum deposit interest rate to 17 per cent, per year. Seabank followed by pushing up maximum deposit rate to 18 per cent, per year. The State Bank then had to issue a notice to the banks requesting them to stop rate race.

“With inflation going wild, investor sentiment would also be subdued, subsequently weighing on growth momentum. We are waiting for the five-yearly National Congress in January for a clearer policy outlook,” said Chan.