Vietnam may hike key rate this year

BLOOMBERG

Wed, Jan 13, 2010 - Page 11

Vietnam’s central bank will probably raise its benchmark interest rate this year to the highest among 16 regional economies, HSBC Holdings Plc said.

The State Bank of Vietnam’s key rate is 8 percent after rising from 7 percent effective Dec. 1. The rate is now lower than Pakistan’s 12.5 percent and Sri Lanka’s 9.75 percent.

Vietnam is set to bypass both countries by mid-year as its central bank tries to stem accelerating inflation and firm up the nation’s currency, said a report released yesterday and written by HSBC economists Frederic Neumann and Robert Prior-Wandesforde.

The central bank’s policy rate will probably reach 12 percent by the fourth quarter, the London-based bank predicted.

“With the trade deficit and inflation both rising sharply and the dong under downward pressure, the government needs to tighten the purse strings significantly,” HSBC said. “For policy rates, we expect the biggest percentage-point hikes in the base rate over the coming year in Vietnam, India and Indonesia.”

Other economies whose policy rates are covered by the report include Taiwan, Australia, China, Hong Kong, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea and Thailand.

Vietnamese inflation may reach 12 percent by the second quarter, HSBC predicted. The country’s year-on-year rate last month was 6.5 percent, the fourth straight month that the General Statistics Office in Hanoi has reported a higher figure.

“Inflation is set to become more of a problem as higher oil and food prices feed through to the headline rate,” Singapore-based Prior-Wandesforde wrote.

Vietnamese inflation should reach at least 10 percent by the second quarter “if not earlier,” he said in the report.

Meanwhile, Brazil’s central bank may keep interest rates unchanged longer than previously expected after weaker-than-forecast output and growth data reinforced a “wait-and-see” scenario, Morgan Stanley said in a report.

“While growth remains strong, the most recent data reduce the sense of urgency for rate hikes,” Marcelo Carvalho, Morgan Stanley’s chief economist in Brazil, wrote in a report yesterday.

Brazil’s real GDP growth in the third quarter was weaker than economists forecast, government reports showed.

Last month’s decline in vehicle output indicates that month-on-month industrial output may have weakened again last month, Carvalho wrote.

Morgan Stanley predicts the central bank will increase the Selic benchmark rate by 225 basis points this year to 11 percent, with the first increase in April.