The Politburo, comprising the 14 elite leaders of the Communist Party of Vietnam, last week reaffirmed its desire to curb skyrocketing inflation and anchor the economy.

The announcement stated Vietnam would not target economic growth this year higher than 2010 to avoid stoking inflation.

“The targets of reining in inflation, stabilising the economy and ensuring social welfare are facing difficulties. The results will depend on the determination of the whole society and the effective management and implementation of Resolution 11/NQ-CP,” said the announcement.

On February 24, 2011, the Vietnamese government adopted Resolution 11/NQ-CP, stating that it would cut regular expenditure by 10 per cent, while ordering the State Bank to control credit growth below 20 per cent this year.

After slightly expanding in 2009 at 6.52 per cent, Vietnam’s inflation rebounded to 11.75 per cent in 2010.

During the first two months of this year, the consumer price index (CPI) rose 3.87 per cent, or 12.24 per cent year-on-year.

Trade deficit, another big concern for the economy, reached $1.83 billion at the same time, accounting for 14.8 per cent of export turnover.

High inflation and trade deficit put strong pressure on the local currency, forcing the State Bank to devalue the dong by 9.3 per cent against the US dollar last month.

The Politburo stated that monetary and fiscal policies would continue being tightened.

Under the Politburo’s guideline, the government will have to “carefully apply a tightened monetary policy for controlling inflation and gradually increase forex reserves” and the country’s fiscal policy will be tightened while state-owned enterprises’ investments will be closely monitored.

In a note sent to their clients, Nomura Group economists Yougesh Khatri and Euben Paracueless said Vietnam’s lower targets for credit growth and fiscal deficit, and higher interest rates were the right moves.

“But, we expect further tightening measures such as reserve requirement increases,” they wrote.

The note said it was important for Vietnam to monitor indicators such as credit growth, lending rates, fiscal and current account positions, forex reserves, informal forex rates and credit spreads to determine whether policies remain focused on macro stability before discounting another stop-go cycle.