“I believe that inflation will not undergo a sudden surge from now until the end of this year and the government’s goal of keeping the inflation rate at 7 percent may be reached,” said Nguyen Tien Thoa, head of the Price Management Department at the Finance Ministry.

The global economy has showed signs of recovery, but its growth prospects are still dim, he said, arguing that this would keep prices below normal levels.

Meanwhile, China has halted a campaign to stockpile raw materials, so “the pressure on material prices will not be much,” he said.

Thoa added that world oil prices were forecast to remain unchanged and would stand at around $70 per barrel through this year.

The government’s 4-percent interest subsidies and tax reductions and exemptions have spurred the economy by helping enterprises cut their input costs.

Many localities are offering capital assistance to enterprises that provide goods and services for the Lunar New Year Festival (Tet) so that they can promote their products and reduce prices.

“The firms have pledged to sell their products at prices 10 percent lower than market levels,” Thoa said. “This is a good sign.”

Watchful eye

Consumer prices in Vietnam rose 2.4 percent in September from a year earlier after climbing 2 percent the previous month in the first hike since August 2008, according to figures from the General Statistics Office.

“We should stand vigilant against the return of inflation, which may occur in 2010, due to the impacts of this year’s stimulus package,” Thoa said.

The country should not loosen monetary and financial policy next year like it did in 2009, he said, instead suggesting more flexible policy in line with the recovering global economy.

The Asian Development Bank (ADB) has also warned Vietnam against the reoccurrence of inflation, which could be aggravated by higher commodity prices and the rapid growth of money supply as the global economy recovers.

Inflation is now forecast at 8.5 percent next year, revised up from 5 percent, according to the ADB’s Asian Development Outlook 2009 Update. This year, inflation is estimated at 6.8 percent.

“If we take anti-inflation measures well, the inflation rate will stay below 10 percent in 2010,” said Thoa.

The ADB suggested the State Bank of Vietnam (SBV) pursue moderately tight monetary policy in 2010 to support the dong and counter inflation pressures stemming from accelerating growth and rising world commodity prices.

Country economist Bahodir Ganiev said Vietnam should not issue more financial stimulus until carefully assessing the medium-term effects of the existing package.

ADB has revised its gross domestic product (GDP) growth forecast for Vietnam for 2009, from 4.5 percent projected in March to 4.7 percent, and maintained a projected growth rate of 6.5 percent for 2010.

Stabilizing material prices

Thoa said the government would keep the cost of major materials and services, such as electricity, bus fares and post and telecommunications, unchanged through the end of the year.

To keep prices at “acceptable levels,” Thoa said the government would subsidize transport fees for some products transported through mountainous regions and would also support farm produces from localities facing production difficulties.

“We stabilize the prices of items that are regulated by the state, and others are based on market regulations. However, international and domestic market forecasts show that even the prices of items left alone will not see sudden hikes this year.”

The country should ensure a supply-demand balance, especially late this year, when consumption demand increases, he said. Many localities have actively prepared their goods supply for the year-end. “The supply of many products has exceeded our demand, creating favorable conditions for us to stabilize prices if we see signs of a hike.”

He said the government planned to accelerate its economic stimulus program to improve production at beneficiaries so that the increasing demand for goods is met in the remaining months of the year.

The country should keep over-budget spending below 7 percent of the GDP this year as targeted by the National Assembly to avoid price pressures, he added.

The government should also rein in credit growth below 30 percent this year, he suggested, adding that the stabilization of foreign exchange rates between dong and US dollar and keeping the base rate unchanged would also be essential to keeping bank interest rates stable so that firms do not suffer from higher input costs.

The SBV said it plans to hold its benchmark base rate unchanged at 7 percent for the rest of the year, which means the maximum rate for dong loans would be kept at 10.5 percent. The base rate has been set at 7 percent since February.

The Vietnam Banking Association, which groups 52 local lenders, said its member banks have agreed to keep interest rates stable for the remaining months of the year following a series of hikes starting last month.

“The central bank’s monetary policies aim to support economic growth, and at the same time rein in inflation to a reasonable rate,” Nguyen Van Giau, governor of the SBV, said in a recent statement.

Source: VietNamNet/TN