Vietnam hit by high inflation

Bloomberg: Vietnam plans to widen the dong's trading band to 2 percent, giving more scope for the currency to gain and slow the fastest inflation in more than 12 years.

The wideneing of trading band came about when Vietnam recorded an inflation of 15.7 percent in February from a year earlier. Allowing the dong to strengthen would reduce the cost of importing dairy products, cooking oils and petroleum goods.

``Inflation is generally a problem in Vietnam, but it's specifically a problem in food prices, especially imported food, and oil prices,'' said Matthew Hildebrandt, an economist at JPMorgan Chase Bank in Singapore. ``You need to find a way to limit the impact from imported goods.''

Consumer prices jumped about 6 percent in January and February alone, ``posing great challenges'' for the Vietnamese economy, according to the statement. ``Given global prices are set to increase more, this may have a strong impact on Vietnam's socio-economic development,'' it said.

Reuters: Vietnam's central bank on March 10 widened the dong/dollar daily trading band to +/-1.0% from +/-0.75% previously, as part of a series of measures to tackle double-digit inflation .

Bankers said Hanoi's recent moves signalled a willingness by the authorities to let the currency rise at a faster pace to help offset the rising cost of imports for oil products and food and so help cap inflationary pressures. Vietnam had until recently pursued a policy of pushing the dong down gradually against the dollar to bolster export competitiveness.

The currency started rising towards the end of last year, a trend underpinned this year by central bank measures to tighten monetary conditions. The dong has appreciated about 2.6% from August last year when it started rising against the dollar.

MyTake: If inflation is not contained, a country is vulnerable to face hard landing. Vietnam, similarly to China and Indonesia, is in a state of transition and developing. Conventional monetary measures like raising interest rate and reserve requirement may not be adequate and as such administrative intervention is needed. Adding to the above, due to rising prices especially food, there will be tremendous pressures for industrial factories to maintain or find factory workers who are willing to work on current wages. Strikes and job hopping will force factories to increase their cost of production and possibly to relocate to other parts of the country where labour are still abundant so as to remain competitive.The once red hot stock and often volatile stock markets of HoChiMinh and Hanoi were also not spared by the current tight monetary policy. Both markets are down by more than 40% since December 2007.Great headwind ahead for this young and vibrant country in maintaining growth, stability and foreign investments while fighting a hugh inflation rate at hand.