Vietnam’s Inflation

Vietnams brass is set to raise electricity prices by 15% on Tuesday, at a time when the population is already struggling with a eminent cost of living. Last week the Vietnamese political relation also brocaded the retail prices of oil products by as much as 24%. In February, inflation hit a two-year high of 12. 31%. Analysts say despite the governments measures to tighten monetary insurance, price pressures are likely to continue. The increases in energy, electricity and petroleum indicate that we are going to guarantee inflation get a little worse despite the chemise in government policy, said Christian de Guzman of Moodys Investor Group.Overheating For years the Vietnamese government has kept a loose interest rate policy and subsidized lending in beau monde to boost increment. The government expects the providence to expand as much as 7. 5%, up from 6. 8% in 2010. provided the cost of that rapid pace is that the economy has started to intend signs of overheating. Credit rating agencies cut the countrys sovereign-credit rating make it year. Inflation fears withdraw also caused a sell-off in Vietnamese markets. Vietnams benchmark stock big businessman has slid 6. 7% in the past year. The Vietnamese government was focused on growth at all costs, said Mr de Guzman. By the middle of last year they had already reached their inflation target but then they move to pursue other macroeconomic policy targets like credit growth and gross domestic product growth, he said. Fighting inflation But since the beginning of this year, the government seems to scram shifted its policies towards stabilizing prices. Last week the Vietnamese government announced a set of measures to curb inflation.Electricity prices have been raised in an effort to reduce budget spending The aboriginal bank recently raised the cost of borrowing. It increased the benchmark refinance rate by 2 percentage points from 9% to 11%. The government has also vowed to reduce government debt. To that effect, it cut the budget-deficit target to less than 5% of gross domestic product, from 5. 3%. Reducing government spending on subsidies for fuel and electricity are also part of that plan. In order to stave off inflation, they want to cut back on subsidies.It does lenify some of the pressure on the budget, said Mr de Guzman. Dong devaluation The other major strain on the Vietnamese economy is the currency. The central bank adulterate the dong against the US dollar by 8. 5%. It is the latest in a series of devaluations the government has implemented to reduce the risk of a shortfall in foreign currency reserves. However, that will lead to higher(prenominal) import costs, which in turn, could again increase inflationary pressures.