Vietnam May Have Cut Policy Rates Too Quickly in 2012, IMF Says

Vietnam still faces inflationary pressures, according to the International Monetary Fund, which said it would have preferred a slower pace of interest-rate cuts last year by the country’s central bank.

The State Bank of Vietnam reduced borrowing costs for a sixth time last year on Dec. 24, two weeks after the IMF said the central bank should maintain its policy rate. The refinancing rate was cut to 9 percent from 15 percent at the beginning of the year, while the discount rate and the cap on dong deposits were also also lowered.

Gross domestic product grew at the slowest pace in 13 years in 2012 as a slump in bank lending damped domestic demand, even as the inflation rate slowed to 6.81 percent in December from 18.13 percent at the end of 2011. The monetary policy must focus on ensuring that economic stability gained in 2012 can be maintained this year, said Sanjay Kalra, IMF’s resident representative for Vietnam.

“Going forward, there is still a case for being a little bit more careful,” Kalra said at a conference in Ho Chi Minh City today. “In terms of the balance of risks, it is perhaps advisable to be a little bit late in terms of reducing policy rates than being a little bit too early,” he said, adding that easing would only flood the banking system with liquidity.

Vietnam’s economy may expand about 5.5 percent in 2013, the government said on Dec. 10. Moody’s cut the nation’s credit rating in September, citing “more pronounced weaknesses in the banking system,” while the World Bank has said the country is susceptible to a “premature loosening of policies” that could lead to a resurgence of inflation.

To contact Bloomberg News staff for this story: Jason Folkmanis in Ho Chi Minh City at

To contact the editor responsible for this story: Stephanie Phang at

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