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Vietnam raises interest rate in fight against inflation | Vietnam raises interest rate in fight against inflation |
(about 9 hours later) | |
Vietnam has raised its main interest rate by two percentage points, but the country is still facing a tough fight to control inflation, analysts say. | |
The central bank raised its main cost of borrowing by 200 basis points to 11% from 9% on Thursday. | The central bank raised its main cost of borrowing by 200 basis points to 11% from 9% on Thursday. |
Last week, Vietnam had devalued its currency, the dong, by 8.5%, a move analysts said would fuel inflationary pressures. | |
Annual rate of inflation rose to 12.2% in January, almost a two-year high. | |
Analysts said the rate rise could help support the currency and curb inflation. | |
"The hike is essential, especially after the devaluation of the dong last week," ANZ Bank said. | "The hike is essential, especially after the devaluation of the dong last week," ANZ Bank said. |
ANZ added that the interest rate increase on its own would not slow inflation enough for the State Bank of Vietnam to achieve its inflation target of 7% by the end of the 2011. | ANZ added that the interest rate increase on its own would not slow inflation enough for the State Bank of Vietnam to achieve its inflation target of 7% by the end of the 2011. |
"Therefore, we expect the authorities will have to raise rates again this year," it concluded. | "Therefore, we expect the authorities will have to raise rates again this year," it concluded. |
Sacrifice Growth? | Sacrifice Growth? |
However, there are concerns that continued interest rate increases may start to affect Vietnam's economic growth. | However, there are concerns that continued interest rate increases may start to affect Vietnam's economic growth. |
Some analysts estimate that the country will have to reduce its economic growth target to between 5% and 6% this year. | Some analysts estimate that the country will have to reduce its economic growth target to between 5% and 6% this year. |
That is well below the 7% to 7.5% growth rate the government had earlier forecast. | That is well below the 7% to 7.5% growth rate the government had earlier forecast. |
All three major ratings agencies downgraded Vietnam's credit rating last year because of economic concerns. | All three major ratings agencies downgraded Vietnam's credit rating last year because of economic concerns. |
They cited currency and inflation problems, as well as worries about the country's trade, budget and current account deficits. | They cited currency and inflation problems, as well as worries about the country's trade, budget and current account deficits. |