Vietnam Currency Discussion Board

[RICK C]

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Friday, March 21, 2008
Time to be nervous: Credit Suisse

The Swiss bank Credit Suisse has released an analysis of Viet Nam’s economic prospects in its survey about emerging markets – it emphasises the difficulties Vietnam is facing.

‘Viet Nam: Time to be nervous’ is the heading of the part in the survey that talks about Viet Nam. High inflation is the first challenge the report mentions. Record foreign capital inflow and high economic growth have been forcing prices up in Viet Nam, especially food and foodstuff prices.

Credit Suisse forecasts that the CPI, after gaining the record increase of 15.7% in the first two months of 2008 over the same period of last year, will exceed the 18% threshold in the first half of 2008.

According to Credit Suisse, the government of Viet Nam has been paying special attention to measures to curb inflation; however, Viet Nam needs stronger macroeconomic measures. The government of Viet Nam wants both goals: high economic growth and low inflation. The measures to tighten the monetary policy applied in the last time have not brought the desired effects.

High inflation and bubble burst prove to be real risks for the next 12 months.

It is highly possible that the government of Vietnam will still maintain the currently applied measures, and hope that inflation will be eased once global economic growth slows down.

Credit Suisse thinks that the VND will continue appreciating against the dollar and VND value will increase by 4-5% by the end of this year. By that time, one dollar will be converted to VND15,200. The State Bank of Viet Nam has two times widened the forex trading band in the last three months, which also means that the forex trading band will be widened further in the time to come.

Credit Suisse’s experts believe that the VND revaluation is the best choice the government can make.

It is likely that Viet Nam will make new moves in its monetary policies, like controlling prices of several key products, raising the discount interest rate and compulsory reserve ratio. The discount interest rate may rise by another 1% to 7% in the first quarter of 2009.

Despite the said difficulties, Credit Suisse still thinks that Viet Nam’s economy will maintain a high economic growth rate in the medium term. However, the bank has slashed the forecasted economic growth rate to 8.5% from the previously forecast level of 9.1%. (TBKTVN)



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