Inflation proves to be stubborn

Banks are at the sharp end of the fight against inflation

Last week, the State Bank decided to lift lending rate to local banks via open market operations (OMO) from 14 to 15 per cent, per year. It is the sixth rise since last December’s 7 per cent, per year.

Two weeks ago, a similar move was deployed to lift the rate from 13 to 14 per, cent per year.

Le Tham Duong, head of the Business Management Faculty of Ho Chi Minh City Banking University, said the move was designed to discourage lenders from borrowing funds from the State Bank.

“OMO is one of the most important channels for banks to get fund from the authority,” said Duong.

Via OMO, banks borrow money from the State Bank with collateral being valuable papers such as government bonds.

“The borrowing rate via OMO is 15 per cent, per year while the mobilisation rate is capped at 14 per cent, per year. The message is clear - the State Bank wants to limit money supply in condition of inflation,” said Duong.

Nguyen Thi Kim Thanh, head of Banking Strategy Institute, said the authority’s tightening moves demonstrated its determination to control inflation.

“We should not forget that the authority is pumping Vietnamese dong into circulation on the way back from buying dollars from local banks,” said Thanh.

Three weeks ago, the State Bank confirmed on its website that it had been buying dollars from the local banks.

“More Vietnam dong in circulation places additional inflationary pressures on the economy, thus, the State Bank is buying in dollars in a cautious manner and keep the monetary policy tight,” said Thanh.

In April, General Statistic Office released macroeconomic data showing the consumer price index (CPI) rose by 3.32 per cent month-on-month in April driving year-on-year CPI to 17.5 per cent, the highest level since December 2009.

On April 29, the State Bank decided to raise refinancing rate and overnight lending rate by 1 per cent to 14 per cent, repeating a similar move in March, 2011.

On March 31, the State Bank decided to raise refinancing and overnight lending rates by 1 per cent to 13 per cent, nearly a month after hiking the refinancing and discount rates to 12 per cent from 11 and 7 per cent respectively.