Two-digit inflation rate won’t occur

The government will instruct ministries to take necessary action to curb inflation; two-digit inflation rate will not occur, government officials said yesterday at a press conference to announce the Prime Minister’s conclusions about measures to curb the price increases.

When asked if the government would ask the National Assembly to adjust the approved plan for CPI growth rate as the prices increased sharply in the last time, Tran Quoc Toan, Deputy Chairman of the Government’s Office said that the government was determined to curb inflation, and the approved plan for CPI growth rate would still be followed.

Nguyen Xuan Phuc, Chairman of the Government’s Office, stressed that the economic potential Vietnam had now (foreign currency reserves, food and materials) was strong enough to prevent overly high price increases. Moreover, as a result of the policy on encouraging investment, the GDP growth rate would be higher than CPI in 2007.

“The scenario for two-digit inflation rate will never occur,” Mr Phuc said, denying the opinions by some experts that the inflation rate in 2007 would reach 10% or 11%.

Meanwhile, Nguyen Dong Tien, Deputy Governor of the State Bank of Vietnam, said that he did not believe those who said that the inflation rate would be two digits. “I would bet money that the inflation rate will not reach the two-digit level. I have confidence in the measures the ministries are taking to curb the price increases,” Mr Tien said.

At the press conference, the State Bank of Vietnam officially announced monetary policy solutions aiming to settle the monetary problems which people think were the main reason behind the high inflation rate in the first seven months of the year.

According to Mr Tien, in the first half of 2007, the balance of payments saw the surplus of $6bil, which has helped double the national foreign currency reserves in the last seven months compared to the end of 2006. Vietnam now has the foreign currency reserves equivalent to the payment for seven weeks of imports, the figure which was previously set for 2010.

“We are facing a problem, which has never been seen in history: the foreign investment capital flows in big quantity. We have sometimes bought $500-600mil a day, while we bought $4bil only in a whole year of 2006,” Mr Tien said, adding that this had put big pressure on the economy and needed suitable solutions.

The central bank had to spend VND to buy foreign currencies, and then issue bonds to withdraw VND from circulation. It is estimated that 82% of the cash spent on buying foreign currencies has been taken back by the bond issuances. Moreover, the decision on requiring higher compulsory reserve ratio on bank deposits has helped withdraw VND30tril from circulation, thus reducing the total payment instruments and curbing the price increases.

On August 13, the Ministry of Finance also announced it would issue VND18tril worth of bonds in the third quarter of the year. The bond issuance in July helped raise VND5tril, and it is expected that another VND13tril will be raised in August and September to withdraw cash from circulation.

Deputy Minister of Finance Tran Xuan Ha said at the press conference that his ministry would consider lowering taxes further by 50-70% on goods items which had the tax rates of 20-50% in order to ensure stable supplies, thus stabilising the market.

The goods items which may see further tax decreases include fish, materials to make food (cereal, wheat flour, canned food, sausage, fruit juice) and products belonging to the construction material group, like construction glass.

Mr Ha said that the government would keep strict control over rice exports in order to ensure food security. Vietnam has exported 2.8mil tonnes of rice so far this year, and if counting the signed contracts, the exports have reached 4.5mil tonnes, equal to the volume the government set for the whole of 2007. No more contracts will be allowed to be signed until the fourth quarter of the year.

On the decision to lower taxes on 18 categories of products effective as of August 8, Mr Ha said that if the imports could be kept at the level in the first months of the year, the state budget would lose VND1tril in the last five months of the year. However, it is necessary to sacrifice the state budget collection for the supply and demand balance of goods.

The Ministry of Trade and Industry has forecast that the drastic measures taken by ministries and branches will help curb the inflation rate at 0.5% in August 2007.

Source: VNE