VINACHEM

Vietnam posted arecord low inflationrate of 0.63 percent in 2015, but that could rise to four or five percent this year, according to the Vietnam Quarterly Macroeconomic Monitor, Quarter 1 – 2016.

Inflation had been pushed up by 1.69 percent as of the end of last month, driven by increments in education and healthcare prices, Dr. Nguyen Duc Thanh, VEPR director, said at the ceremonial release of the report in Hanoi on Tuesday.

The four to five percent inflation rate foreseen for this year is based on an anticipated increase in education prices in September, when the new academic year kicks off, Thanh added.

The inflation average of 0.63 percent Vietnam saw last year is far lower than the five percent target of the lawmaking National Assembly, and also the lowest since 2006.

A government report released in late 2015 also forecast that Vietnam’s inflation could soar to five percent this year.

For 2016, experts have said that the rate will surge sharply thanks to factors including rebounding oil prices, budget deficits, and public debts.

“What’s most worrying is the unbalanced state budget,” Dr. Vu Dinh Anh, a seasoned economist, said at the ceremony.

The government is expected to have to borrow money to make up for the budget deficit, which Dr. Anh said will fuel inflation.

“As it is now more difficult to borrow foreign loans, the government may turn to domestic lenders,” he said.

“Then, the state will have to accept loans with higher interest rates but shorter terms to compete with corporate borrowers, which will lead to an interest rate increase for the whole market.”

In fact, both major and smaller banks in Vietnam have already begun increasing borrowing interest.

“When banks are already offering higher deposit interest, it is inevitable that lending rates will also ascend,” Truong Dinh Tuyen, a former minister of trade, said.

“The increased interest rates will surely create pressure on inflation and the foreign exchange rate.”

Tuyen added, however, that the State Bank of Vietnam will have measures to “prevent lending interest rates from skyrocketing.”

The Q1/2016 macroeconomic monitor report pointed out that Vietnam’s economy grew at “a disappointing rate of 5.46 percent” in the first quarter of this year.

The poor growth figure has been attributed to a slowing manufacturing industry and a troubled agriculture sector.