Hanoi (VNA) – Vietnam’s inflation this year is forecast to reach 2.6 percent barringfluctuations of prices on world markets and adjustment in the cost of publicservices, the National Financial Supervisory Commission (NFSC) reported on June12.

In the first five months of the year, the average inflation ratewas at 4.47 percent. But the commission forecast that inflation would droptoward the end of the year due to stability of food and restaurant prices.

However, in its economic report for May and the first fivemonths of 2017, the NFSC estimated that if the exchange rate of VND againstthe US dollar rises 1 percent, inflation will increase 0.17 percent, whilenoting that the VND/USD rate in commercial banks and the free market has showna downward trend since early this year. 

In the remaining months of 2017, the exchange rate will beaffected by high foreign currency demand due to a rising trade deficit, thereport said, forecasting that the country may see its trade balance change froma surplus in 2016 to a deficit of about 3.5 percent of total exports. 

The US Federal Reserve (Fed) raising of short-term interest withsmall adjustments has yet to cause pressure on the exchange rate, the reportnoted. 

In the long-term, the commission said, the VND will beunder pressure from the Fed’s roadmap of raising interest rates, along withunpredictable changes in the prices of Chinese renminbi and Japaneseyen. The prospect of stable interest rates in 2017 is being supported bymacro factors and policies, such as reduced pressure on exchange rates anddrastic measures in tackling bad debt, NFSC said. 

The report also made clear that measures to settle bad debt helpreduce interest rates. On May 16, the Government issued Decree 61/2017/ND-CP onthe verification of bad debts’ initial price, and the formation of a councilfor bad debt auction.

At the same time, a draft law on support for credit institutionrestructuring and bad debt settlement is being finalised, and a decree onsettlement of credit institutions’ bad debt may be approved as soon as June20. 

Interest rates for all terms in the interbank market havegradually decreased to 4-4.2 percent as of May 22, down 0.8-1 percentage pointcompared to the levels at the end of April. Last week, Deputy Governor of theState Bank (SBV) of Vietnam, Nguyen Thi Hong, said the bank has focused on policies to curb inflation underthe 4 percent target set by the Government.

Figures from the General Statistics Office show a 0.53 percentdrop in the consumer price index (CPI) in Mayfrom the previous month, mostly due to a sharp fall in food prices. This month’s CPI rose 3.19 percent from the sameperiod in 2016.

Hong said the central bank’s management of interest and exchangerates has kept the foreign currency market stable. By the end of last month,the central rate rose 1 percent from the same period last year.

NFSC’s calculations show that the country’s ratio of credit-to-GDPhas continuously increased since the last quarter of 2015 to reach 11 percentin the first quarter of this year. This has been the second highest level inthe 2009-17 period, following the ratio of 13 percent in the first quarter of2011.

The country’s credit growth in May saw positive signs. By the endof last month, credit rose 5.7 percent compared to the same period last year.-VNA