Sherman Chan, an economist with HSBC in Hong Kong, said the recent meas

eserves. In an effort to balance the trade account, the State Bank of Vietnam devalued the dong by 8.5% against the U.S. dollar on Feb. 11, the fourth devaluation in 14 months. Last week, it raised its main policy interest rate—the rate it charges commercial banks for capital—by two percentage points to 11%. Moody's Investors Service said Monday that the devaluation could be credit negative for domestic banks as it may weaken their asset quality and capital, adding that it may also raise the "liquidity management challenges" facing Vietnamese banks, and will exacerbate the country's inflation problems. The devaluation, however, may stem the slide in Vietnam's currency reserves—which stand anywhere between $10 billion and $14 billion—and could also narrow its trade deficit, the rating agncy said. "However, without consistent policies to rein in excessive demand and control inflation, the positive aspects of the devaluation are likely to prove fleeting," Moody's said.



Economist Le Dang Doanh, a former adviser to the prime minister, said it is crucial the government introduces measures to ensure macroeconomic stability, including cutting expenditure and improving its investment efficiency. "The government should cut down on the budget deficit, and slowing down credit growth is extremely important. If this set of measures is properly implemented, I think the country can still achieve gross domestic product growth of between 6% and 7% for this year," he said. The government is targeting economic growth of 7.0% to 7.5% this year



Vietnam Steps Up Its Inflation Fight

By JAMES HOOKWAY, 25 February 2011



Vietnam's leaders unveiled measures aimed at curbing soaring inflation rates Thursday, even as residents worried over electricity- and fuel-price increases that are sending energy costs as much as 24% higher. It's a time of spreading unease about the stability of this fast-growing economy. Communist-run Vietnam has one of Asia's worst inflation problems, with a consumer price index that hit a two-year high of 12.31% this month. Prices are set to rise still higher in the coming months as the effects of the energy-price increases and a recent 8.5% currency devaluation against the U.S. dollar—the latest in a series—work through the economy. Recognizing the concerns, on Thursday the government said fighting inflation was now its top priority.



Among the measures approved by Prime Minister Nguyen Tan Dung were a limit on credit growth this year to less than 20%, compared with more than 28% in 2010, and a cut in the budget-deficit target to less than 5% of gross domestic product from the previous 5.3%. The government also ordered state-owned companies to sell their foreign-currency holdings to the country's banks to ease downward pressure on the country's currency, the dong. Taken together with a number of interest-rate increases last week—including one of two percentage points, to 11%, in the rate the central bank charges commercial lenders for capital—this shift could mark a break from years of relentlessly pro-growth policies, economists say. Those polices, while delivering rapid growth, have also left many Vietnamese worried about a soaring cost of living and quickly depreciating currency.




Sherman Chan, an economist with HSBC in Hong Kong, said the recent meas



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