Standard Chartered Bank and the credit rating agency Fitch have both lowered their outlook for Vietnam's growth and anticipated a higher inflation rate and a weaker dong this year, Vietnam News Agency said on May 30.
On May 28, Standard Chartered Bank raised its expectations of Vietnam's inflation in 2008 to 23 per cent from 17 per cent and lowered its forecast for growth in GDP to 6.7 per cent from 7.5 per cent based on the ongoing rise in global oil and commodity prices, and the government's tighter monetary policies.
Figures in May have begun to bear this out. The consumer price index rose 25.2 per cent on-year in May, and 3.9 per cent in the single month since April.
Fitch, a day later, affirmed Vietnam's BB-minus long-term foreign currency issuer default rating (IDR) and its BB long-term local currency IDR, which is three levels below investment grade.
But the agency still revised the outlook from stable to negative, calling double-digit inflation “a serious concern for Vietnam” and saying that the stability of the country's banking system may be at risk because of a slow government response to fighting inflation running at 25 per cent.
The international rating agency also affirmed its short-term foreign currency IDR at B and the country ceiling at BB minus.
Vietnam's external balance sheet remains strong compared with similar economies, the agency said, but warned that "signs of economic overheating are evident in its recent balance of payments performance."
“There has been a sharp deterioration in the country's current account deficit, whose financing increasingly depends on non-FDI capital inflows,” said Franklin Poon, director of Fitch's Asia sovereign ratings team.
Standard Chartered's regional head of economic research, Tai Hui predicted a rise in the nation's trade deficit this year to US$30 billion and noted that fiscal policy aimed at reducing the trade deficit has already put an upward pressure on the value of the dong.
The British lender predicted that the U.S. dollar would rise to VND16,700 or even to VND17,000 by late this year.
Most commercial banks are now listing buy/sell rates at about VND16,200/US$1, with the domestic currency still limited to fluctuations of no more than 1 per cent against the daily trading band set by the central bank.
The State Bank of Vietnam, the country's central bank, has raised the prime rate to 12 per cent from 8.75 per cent and moved the discount rate to 13 per cent from 11 per cent, and Hui expected further increases in both money market rates and prime rates in the coming months.
With the tighter credit picture and rising commercial lending rates, an economic slowdown was inevitable, but Hui believed that higher benchmark rates would help provide some stability in exchange rates and help curb inflation.
Fitch Ratings, Ltd., dual-headquartered in New York City and London, was one of the three Nationally Recognized Statistical Rating Organizations (NRSRO) designated by the U.S. Securities and Exchange Commission in 1975, together with Moody's and Standard & Poor's. (VNS)
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