Currently, inflation is a concern of Vietnam’s economy as the General Statistics Office reported that Vietnam’s consumer price index (CPI), a gauge of inflation, rose by 0.55 percent in May from April, marking the highest monthly increase since 2012.
May’s record high pushed the CPI in the first five months of this year to swell 3.01 percent year-on-year. Although it is within the allowable threshold of less than 4 percent as targeted by the government for this year, many economists suppose that inflation pressure is returning to Vietnam’s economy.
There are many signs showing that high inflation risks are looming ahead. In the latest macro-economic report, the National Financial Supervisory Commission said if oil prices increase by an average of about 24-25 percent against last year to US$65 per barrel following the latest forecast of the World Bank, it will cause local transport prices to rise by some 8-10 percent, and inflation in 2018 may reach 4-4.1 percent year-on-year.
In another case, if the average oil price in 2018 increases 17-20 percent compared to 2017 to reach $60-62 per barrel as forecast from the beginning of the year, local transport costs will rise by roughly 5-7 percent from the previous year and inflation in 2018 is to swell about 3.5-3.8 percent against last year, the commission estimated.
However, with the current developments along with the Fed’s upcoming interest rate hikes, this year’s inflation is likely to suffer from more pressure. Even, economist Can Van Luc said it would have been a success if this year’s inflation is controlled at 4 percent.
Banking expert Nguyen Tri Hieu also forecast that CPI this year could exceed the threshold of 4 percent, adding that an alarm was needed if the rate exceeded 4.5 percent.
Consequence on the stock market
In principle, high inflation will put pressure on the exchange rate, which is currently under high pressure after the US Federal Reserve (Fed)’s decision to increase the benchmark interest rate 0.25 percentage points on June 14 and signal to make two more hikes from now till the end of the year.
Experts were concerned if the VND depreciates sharply, this would encourage foreign investors to sell shares. At the least, they would not buy shares for the fear that the risks may undermine or erase all the gains they made recently.
The high inflation rate may also force the State Bank of Vietnam to tighten monetary policy to curb inflation. The solutions of raising interest rates and reducing the money supply will have negative impact on the stock market in general and enterprises in particular.
Higher capital costs will lead to the decrease of enterprises’ profitability. As for investors, as the loans are no longer cheap, they will not borrow money to invest in the stock market.
Do Ngoc Quynh, director of the Bank for Investment and Development of Vietnam’s capital division, suggested that the central bank needs to take flexible and timely monetary and exchange rate policies, in a close coordination with the fiscal policy, to better control inflation, which will help create confidence for investors.
Deputy Prime Minister Vuong Dinh Hue recently required ministries and sectors to take specific measures and solutions to control inflation, in which he asked the central bank to run a flexible monetary policy, strictly manage credit growth, stabilize the foreign exchange market as well as put forth equitisation of state-owned enterprises.
Hue also directed the Ministry of Industry and Trade in collaboration with the Ministry of Finance to manage the fuel stabilization fund in an efficient way to stabilize domestic oil and gas market.
Despite the high pressure, the government is confident that the target to keep inflation below 4 percent is feasible.
Rising oil price puts more pressure on Vietnam’s inflation.
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There are many signs showing that high inflation risks are looming ahead. In the latest macro-economic report, the National Financial Supervisory Commission said if oil prices increase by an average of about 24-25 percent against last year to US$65 per barrel following the latest forecast of the World Bank, it will cause local transport prices to rise by some 8-10 percent, and inflation in 2018 may reach 4-4.1 percent year-on-year.
In another case, if the average oil price in 2018 increases 17-20 percent compared to 2017 to reach $60-62 per barrel as forecast from the beginning of the year, local transport costs will rise by roughly 5-7 percent from the previous year and inflation in 2018 is to swell about 3.5-3.8 percent against last year, the commission estimated.
However, with the current developments along with the Fed’s upcoming interest rate hikes, this year’s inflation is likely to suffer from more pressure. Even, economist Can Van Luc said it would have been a success if this year’s inflation is controlled at 4 percent.
Banking expert Nguyen Tri Hieu also forecast that CPI this year could exceed the threshold of 4 percent, adding that an alarm was needed if the rate exceeded 4.5 percent.
Consequence on the stock market
In principle, high inflation will put pressure on the exchange rate, which is currently under high pressure after the US Federal Reserve (Fed)’s decision to increase the benchmark interest rate 0.25 percentage points on June 14 and signal to make two more hikes from now till the end of the year.
Experts were concerned if the VND depreciates sharply, this would encourage foreign investors to sell shares. At the least, they would not buy shares for the fear that the risks may undermine or erase all the gains they made recently.
The high inflation rate may also force the State Bank of Vietnam to tighten monetary policy to curb inflation. The solutions of raising interest rates and reducing the money supply will have negative impact on the stock market in general and enterprises in particular.
Higher capital costs will lead to the decrease of enterprises’ profitability. As for investors, as the loans are no longer cheap, they will not borrow money to invest in the stock market.
Do Ngoc Quynh, director of the Bank for Investment and Development of Vietnam’s capital division, suggested that the central bank needs to take flexible and timely monetary and exchange rate policies, in a close coordination with the fiscal policy, to better control inflation, which will help create confidence for investors.
Deputy Prime Minister Vuong Dinh Hue recently required ministries and sectors to take specific measures and solutions to control inflation, in which he asked the central bank to run a flexible monetary policy, strictly manage credit growth, stabilize the foreign exchange market as well as put forth equitisation of state-owned enterprises.
Hue also directed the Ministry of Industry and Trade in collaboration with the Ministry of Finance to manage the fuel stabilization fund in an efficient way to stabilize domestic oil and gas market.
Despite the high pressure, the government is confident that the target to keep inflation below 4 percent is feasible.
