Low inflation leaves room for interest rate cuts

Saturday, Dec 20, 2014 11:23

The inflation rate is projected to be four per cent next year, which is expected to leave room for interest rate cuts. —  Photo antt.vn
HA NOI (Biz Hub)— Inflation is expected to dip lower next year, which could give the central bank room to cutback loan interest rates, according to the Ministry of Planning and Investment.

Initially, the inflation rate was projected to be four per cent next year, as revealed in a meeting on Wednesday, Vneconomy reported.

The Ministry of Planning and Investment said any price adjustments, whether in case of products or services in domains such as healthcare, education, power and petrol, must be carefully considered to prevent any significant impact. Similarly, any decision to adjust the price of oil should be critically deliberated upon, as well.

This followed the Electricity of Viet Nam's proposal to raise power tariffs by an average of 9.5 per cent, beginning this month.

According to the ministry, the input-output analysis (I/O) revealed that a 9.5 per cent increase in power price would raise the production cost by 0.55 per cent. It would also cause the end-consumption of households to decline by 0.58 per cent and the gross domestic product (GDP) growth rate to decrease by 0.45 per cent.

In addition, cutting the loan interest rate by one per cent would increase the GDP growth rate by 0.45 per cent and cause the inflation rate to decline by 0.76 per cent.

An expert said that the loan interest rates of Viet Nam remain high, putting immense pressure on businesses. If loan interest rates are not lowered, then it would be difficult for the economy to attain stable growth in medium and long term.

The government of Viet Nam has prioritised macroeconomic stability and inflation curbing in the past.

Last month, Prime Minister Nguyen Tan Dung had said Viet Nam's inflation rate this year was likely to remain below three per cent, its lowest level in decades. — VNS

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