HSBC: Vietnam Likely to Increase Interest Rates Significantly
Oct. 6 – The State Bank of Vietnam will probably increase its key rate by 400 basis points to 11 percent by the end of 2010, HSBC said in a report Tuesday.
The country’s interest rate hike, likely to be the biggest in Asia, is a result of Vietnam’s widening trade deficit, accelerated inflation and a perennially weak currency. The next biggest cumulative rise would be in Indonesia, where the central bank is forecast to raise its benchmark rate by 150 basis points to 8 percent. A basis point is 0.01 percentage point.
The Vietnamese economy expanded 5.8 percent in the third quarter, up from 4.5 percent in the second quarter, driven in part by a government stimulus package that included an interest-rate subsidy program. Inflation accelerated in September for the first time in more than a year.
“Vietnam stands out as having administered by far the most in the way of policy medicine to tackle the slowdown,” said the HSBC report. “With credit growth having already surged in the country and the trade deficit moving sharply higher again, the risk is that too much has been done and some of the measures will need to be taken back relatively quickly.”
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