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Vietnam was ‘pro-active’, ‘forceful’ on rate moves, ANZ says   2010-01-21 - Bloomberg

The State Bank of Vietnam building in Ly Thuong Kiet St., Hanoi  
Vietnam’s central bank was “pro- active” and “forceful” in raising interest rates last year, which may limit the extent of further increases in borrowing costs in 2010, Australia & New Zealand Banking Group Ltd. said.


The Southeast Asian nation’s central bank boosted its benchmark rate to 8 percent as of Dec. 1 from the 7 percent level it had held at since February. The increase took place earlier than had been anticipated, Barclays Plc said this month.

The actions were in contrast to 2008, when Vietnam’s central bank delayed its reaction to a rising trade deficit, according to a research note written by Paul Gruenwald, the Singapore-based chief Asia economist for ANZ. The latest moves were also in response to “growing balance of payments pressures” as the country’s trade gap began to grow again, he said.

“This time the policy action was upfront and reasonably forceful,” Gruenwald wrote, in a note dated Wednesday. “This implies that interest and exchange-rate moves in 2010 and beyond, if necessary, will be more moderate and less disruptive to growth.”

The policy moves by Vietnam’s central bank, announced on Nov. 25, also included a devaluation of the country’s currency, the dong. The World Bank has valued the devaluation at 3.4 percent.

A higher trade deficit “combined with lower levels of external financing was putting downward pressure on the currency,” Gruenwald wrote.

The dong traded at 18,479 per dollar on Thursday, unchanged from its exchange rate at the end of 2009. The gap between the currency’s official exchange rate and the black-market rate narrowed after the central bank move, the UK-listed Vietnam Property Fund Ltd. said in a stock-exchange release this week.

HSBC’s prediction

The central bank’s benchmark rate will probably rise to 9.5 percent or 10 percent by year-end, ANZ said. HSBC Holdings Plc predicted last week that the rate would reach 12 percent by the fourth quarter, the highest among regional economies covered by the London-based bank.

Vietnamese growth this year will be constrained by the country’s balance of payments, Gruenwald said. Vietnam recorded a $12.25 billion trade shortfall in 2009, swinging into deficit after posting a first-quarter surplus.

The country’s economy will probably expand 6.3 percent this year, ANZ predicted in the note, faster than the full-year 5.3 percent that the General Statistics Office in Hanoi reported for 2009 and slower than the 6.9 percent announced for the fourth- quarter alone.

“The moderation in growth will come from a slower rate of expansion in industrial activities and construction,” Gruenwald wrote.

Full-year growth should accelerate to 6.7 percent in 2011 and 7.4 percent in 2012, according to ANZ.

“Vietnam’s medium-term fundamentals are still strong,” Gruenwald said in the note. “Growth should approach its potential of around 7 to 7.5 percent as the external environment normalizes.”

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