VINACHEM

Inflationary pressures in 2014 have remained low, reflecting both weak domestic demand and subdued commodity prices, according to economists at the Hong Kong and Shanghai Banking Corporation (HSBC).

HSBC reports that the inflation rate in April rose a modest 4.45% year on year, picking up slightly from last month’s rate, and forecasts that prices are expected to stay relatively steady throughout the remainder of the year.

Even with social costs set to increase in August and September, HSBC economists still forecast inflation for 2014 to be at a 10 year low.

Vietnam had the lowest month on month increase in inflation in more than a decade in April, said HSBC, adding that for the past 13 years, the average month on month increase of prices for the first four months of the year was 1.0%.

With price pressures contained, the State Bank of Vietnam (SBV) has room to keep the OMO short-term interest rate on hold at 5.0% until the end of 2014, HSBC reports.

As a result of lower interest rates, credit growth accelerated in April to 1.35% from the end of March (according to statements from the SBV). The central bank also lowered the lending rates on loans acquired by the Vietnam Asset Management Company (VAMC) as well as encouraged commercial banks to reduce lending rates.

HSBC forecast that prices will increase modestly over the next two months as domestic conditions gradually pick up. However, price pressures are expected to be lower on average this year as consumer confidence remains modest and global prices stay lackluster.