Vietnam should let interest rates increase and slow economic growth to boost confidence in its currency, Asianomics Ltd. Managing Director Jim Walker said.
“There’s too much credit growth,” Walker said at a conference in Ho Chi Minh City today. “The reason that the exchange rate is soft is that they’ve printed too much money.”
Repeated calls by the government this year for lower commercial lending and deposit rates have undermined market confidence, the International Monetary Fund said last month. Vietnamese Prime Minister Nguyen Tan Dung said on Oct. 20 that economic growth may accelerate next year to 7.5 percent from 6.7 percent in 2010.
“The exchange rate will continue to be on a depreciation trend until the government gets its act together on interest rates,” Walker said at the conference organized by VinaCapital Investment Management Ltd., the country’s biggest fund manager.
The State Bank of Vietnam has devalued the dong three times in the past year, and further such moves are likely given the government’s “growth bias,” Standard Chartered Plc said Oct. 26.
Vietnamese banks’ deposit and lending rates fell from Oct. 15- 21, the central bank said yesterday. The Southeast Asian nation is targeting 25 percent credit growth this year.
Current interest rates of about 11 percent for deposits and 13 percent to 15 percent for borrowing have to go up further to cool the economy, Walker said.
Commercial deposit and lending rates should rise by about 200 basis points and economic growth should slow to about 5 percent or 6 percent, Walker said in an interview after his speech.
Vietnam also needs to reduce its consumer inflation rate to less than 5 percent, he said. The nation’s consumer price growth accelerated in October to 9.66 percent, the fastest in 19 months.
“In Vietnam, there’s too much money supply growth,” said Hong Kong-based Walker, the former chief economist at CLSA Asia-Pacific Markets. “That’s why the exchange rate is weak and inflation is high.”
On the so-called black market, the Vietnamese dong weakened yesterday to as much as 20,230 per dollar at money changers in Ho Chi Minh City, according to a telephone information service run by the state-owned Vietnam Posts & Telecommunications. The currency’s official exchange rate as of 10:30 a.m. Hanoi time was 19,490.
“While the government is currently looking to push commercial lending rates lower in order to facilitate credit growth and economic expansion, the resumption of inflation is likely to force the authorities to review this policy stance,” Tai Hui, the Singapore-based head of Southeast Asian economic research at Standard Chartered, said in a note.