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Vietnam to face same problems in 2012: Standard Chartered DinarDailyUpdates?bg=330099&fg=FFFFFF&anim=1

Vietnam to face same problems in 2012: Standard Chartered

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Vietnam to face same problems in 2012: Standard Chartered Empty Vietnam to face same problems in 2012: Standard Chartered

Post by lexie Sat Nov 19, 2011 4:38 pm

November 18, 2011

Vietnam to face same problems in 2012: Standard Chartered

Standard Chartered Bank has predicted the challenges faced by Vietnam this year will stay next year, including the currency depreciation and the pressure to loosen its control on credit and monetary growth.

In its report on Vietnam’s economic activity and outlook for 2011 and 2012, the bank predicted inflation at 11.3% next year and 8% for the following year, while the exchange rate is estimated at VND22,000 to the dollar in 2012.

The credit institution expected the annualized inflation would ease further to 19.7% this December and return to the single-digit rate by the end of the second quarter next year.

However, lower inflation would not necessarily facilitate loosening monetary policy in the coming time given the depreciation pressure. Vietnam dong would continue its devaluation in 2012 caused by current account deficit and low level of foreign exchange reserves, said the report.

After a period of strength between May and July, Vietnam dong has come under renewed pressure. The exchange rate in the secondary market has again surged above the official trading band at VND21,450.

Standard Chartered ascribed this situation to the market expectations that the loans in the U.S. dollar borrowed earlier this year are going to fall due, thus fueling demand for the greenback.

“Dong depreciation pressure runs counter to the peaking of headline inflation and the healthier trade deficit. The trade deficit stood at US$7.6 billion for the first nine months of 2011 and is likely to undershoot our full-year forecast of US$12-15 billion,” said Standard Chartered in its report.

The bank’s experts believed the Vietnamese government may be able to keep the exchange rate stable for the rest of the year, but further devaluations are likely to occur next year.

The credit institution expected further lending rate cuts in 2012 as the State policy emphasis switches back to growth from inflation. Loosening policies are likely to start in next year’s second quarter when inflation cools down.

On the other hand, the experts are concerned that the global economic situation may turn worse than expected, which may leave a direct impact on supply-side inflationary pressure, prompting the central bank to sooner ease the policies.

They also forecasted Vietnam’s gross domestic product (GDP) growth would be 6.3% in 2012 and 6.5% in 2013.


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