Wednesday, March 5, 2008

Vietnam Expands Dong Trading Band to Tame Inflation

by Michelle Roberts

The Vietnam government has plans to expand the trading band of its currency by 2% which will extend the Dong’s range for gain and would in turn help in bringing down or controlling the greatest inflation rate in over 12 years. Nguyen Sinh Hung, the Deputy Prime Minister of Vietnam asked the central bank to extend the band for the dong from 0.75%. There was a directive posted on the website of the cabinet on Tuesday that showed the plans of the government. The rises in global prices accelerated the inflation to 15.7% in February this year from a year before. Letting the dong to consolidate will bring down the cost of importing dairy items, petroleum products and edible oils.

An economist at JPMorgan Chase Bank in Singapore, Matthew Hildebrandt, opined that for Vietnam inflation is a common problem but it is particularly a concern in the prices of food specifically the prices of imported food and oil. The economist further added that one needs to come up with a solution to control the blow that results from imported commodities. In January and February alone consumer prices climbed by as much as 6% which created considerable challenges for the economy of Vietnam as per a statement. The statement further added that global prices are slated for more rises which can have a considerable blow on the socio-economic development of Vietnam.

Governor of the Central Bank of Vietnam, Nguyen Van Giau, said that the time for implementing the new changes as per the government has not been finalized as yet, he further said that the bank has still to discuss with the government about implementing the directive. The inflation in China rose to 7.1% which was the highest in 11 years due to rises in the costs of commodities as well as in energy. There were also gains in consumer prices of Indonesia which were about 7.4%.

The currencies of both of these Asian countries have been let to appreciate as against the dong of Vietnam that maintains the policy of keeping the currency weak so that exports become competitive. The dong consolidated 0.02% to 15,922 trading against the dollar. Vietnam has let the dong to add two percent in the last six months. The year-on-year inflation of Vietnam quickened to the highest last month which was the greatest since September 1995. In the last month the imports of the country climbed up by 64% that involved a 121% rise in items such as milk and milk products and there was likewise an increase of 157% in the imports of oil and fat. According to the economist with JPMorgan Chase Hildebrandt inflation will increase to an average of 16.1% for the current year and the dong will also consolidate by 1%. The caretaker Deputy Prime Minister of Vietnam Hung has also told the State Bank to think about increasing the total reserves which is necessary for banks to keep aside to bring down the liquidity in the economy. The central bank in Vietnam directed banks to increase their reserve amount to 11% from their earlier 10%.

 

 

 

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