Vietnam doubles forex reserves, fights inflation

Vietnam has enough foreign exchange reserves to cover 20 weeks of imports, a senior central bank official was quoted on Tuesday as saying.

"We have dozens of billions of U.S. dollar in reserves," the Thanh Nien newspaper quoted Deputy Governor of the State Bank of Vietnam Nguyen Dong Tien as saying.

"While the foreign exchange reserves were just enough to cover nine to 10 weeks of imports, now they are enough for 20 weeks," Tien told a news conference on Monday to which foreign reporters were not invited.

He did not give the absolute value of reserves but said the increase resulted from rising foreign investment inflows and central bank purchases of foreign exchange to hold down the dong.

Economists say the central bank has bought $7 billion this year, meaning some 110 trillion dong has been pumped into the economy, which has fuelled inflation.

Consumer prices in July were 8.39 percent higher than the same month last year and by the end of July the consumer price index had risen 6.19 percent from the end of 2006.

The government is aiming for annual GDP growth of 8.5 percent this year while keeping inflation below that growth rate.

Economists say double-digit inflation is a possibility, but Tien told the news conference that the central bank had stepped up its draining of inflation-fuelling funds from the economy through open market transactions.

So far it had mopped up 80 percent of the dong spent to purchase the foreign currency, Tien said.

"The prime minister has a belief that it will be feasible to achieve both high economic growth and control of inflation," Tien was quoted by Thanh Nien as saying.

"I personally also believe so and I am ready to bet with anyone who says this year's inflation is double-digit," he said.

To back up the fight against inflation, the Finance Ministry cut the import duty on several diary products, meat, home appliances and cars last week.

The Finance Ministry and the Ministry of Industry and Trade are also asking domestic petrol distributors to cut petrol prices by 500 dong per litre, the government said. That is a cut of around 4 percent.

The government has instructed the Agriculture Ministry to try to contain pig disease now spreading in the central and southern provinces, which is pushing up meat prices.

Food accounts for more than 40 percent of the basket used to calculate Vietnam's consumer price index.

Source: Reuters