Vietnam inflation at record low this year

> It’s only 0.63% but officials warn that it could jump to 5% in 2016

HANOI: Vietnam saw record low inflation of 0.63% in 2015 but the rate could rise to 5% next year on anticipated increases in electricity, education and healthcare prices, the government said yesterday.

The inflation average was the lowest since Vietnam started calculating it in 2006, which the General Statistics Officeattributed to falling oil prices globally.

Separately, the central bank announced that loan growth could reach a six-year high of 18-20% in 2016 and that the country’s bad debt ratio was at 2.72% by the end of November.

Three years ago, a crippling 17.5% of loans were bad debts, which sent the economy to the brink of crisis.

Inflation, bad debt, credit growth and currency stability have been the focus of the State Bank of Vietnam’s (SBV) policymaking after prices soared 23% in 2008 and bad debt spiralled out of control, causing a real estate crisis and wave of bankruptcies.

The economy is now firmly back on track, outpacing much of Asia with growth this year forecast at 6.5%, the highest since 2010. Growth has been buoyed by solid exports and factory output, plus record foreign investment. Credit growth of 18% is expected this year.

“Inflation in 2015 is low but we can’t disregard this next year,” SBV deputy governor Nguyen Thi Hong told reporters. “Operating interest rates policy in 2016 will be a challenge.”

Another test, she said, was to keep the dong, Vietnam’s currency, stable amid a rising dollar and the International Monetary Fund’s admission of China’s yuan into its benchmark currency basket.

The dong, which has weakened more than 5% against the dollar this year, is under pressure from Vietnam’s first trade deficit since 2011, seen at over US$3 billion (RM12.9 billion). Export growth has slowed while imports have expanded faster, particularly for machinery and electronics.

The SBV this year devalued the currency three times and widened the dollar/dong trading band twice.

Hong did not answer questions on the level of foreign reserves and whether the SBV would depreciate the dong further soon.– Reuters