Vietnam Government Bonds Rally on Slowing Inflation; Dong Drops

Vietnam’s two-year government bonds rallied after data showed inflation eased to the slowest pace in a year, adding to speculation the central bank will cut interest rates. The dong weakened.

Consumer prices rose 14.15 percent in March from a year earlier, the General Statistics Office said March 24. Slowing inflation may allow Vietnam to lower interest rates by 100 basis points each in the second, third and fourth quarters, central bank Governor Nguyen Van Binh said March 12, the same day the monetary authority announced a percentage point cut benchmark rates.

“Lower inflation should lead to greater macroeconomic, and, in particular, balance of payments stability,” Matt Hildebrandt, a Singapore-based economist at JPMorgan Chase & Co., wrote in a report released today. The central bank will probably cut rates by another 300 to 400 basis points in 2012, he said.

Two-year bond yields fell 11 basis points, or 0.11 percentage point, to 11.52 percent as of 3:19 p.m. in Hanoi according to a daily fixing rate from banks compiled by Bloomberg.

The dong weakened 0.1 percent to 20,900 per dollar, according to data compiled by Bloomberg. The central bank set the reference rate at 20,828, unchanged since Dec. 26, its website showed. The currency is allowed to trade as much as 1 percent on either side of the official rate.

To contact the reporter on this story: Nick Heath in Hanoi at nheath2@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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