Vietnam’s battle to subdue Asia’s highest rate of inflation must continue, the Asian Development Bank said Wednesday, but it predicted more pain ahead for the country’s consumers.
Vietnam is now expected to see annual inflation average 18.7 percent in 2011, the ADB said, significantly higher than its own previous prediction of 13.3 percent and the government’s 15 percent forecast.
Consumer prices in the communist nation rose at an annual rate of 23 percent in August, which the bank said was much higher than any other country in the region, driven by soaring food costs.
ADB said Vietnam should press on with a package of fiscal and monetary tightening, known as Resolution 11, to try to restore faith in the shaken economy.
“Sustained and consistent implementation of Resolution 11 will lower inflation and allow interest rates to come down. This would restore investor confidence and stimulate economic activities,” the ADB’s Vietnam director Tomoyuki Kimura said at a press conference.
“The main risk to our near-term forecasts is a premature easing of macroeconomic policies.”
Vietnam’s inflation rate was 9.2 percent in 2010 and the bank expects the government’s efforts — if maintained — to help consumer prices ease back to 11 percent in 2012 after this year’s spike.
The country announced its stabilising policy in February, amid double-digit price rises, dwindling foreign reserves and a weakening currency, as it shifted away from the government’s long-time focus on growth.
Measures included raising key interest rates, vowing to cut state spending, and ordering that growth in credit, or loans, stays below 20 percent.
Vietnam has a history of inflationary challenges. Price rises hit a recent peak of 28.3 percent in August 2008 and triple-digits in the 1980s.
Global economic uncertainty caused the ADB to moderate its expectations for economic growth across Asian developing nations on Wednesday amid ongoing concerns about weak demand from the US and EU.
Vietnam’s 2011 growth rate was downgraded to 5.8 percent, from 6.1 percent predicted earlier.
ADB sees inflation at an average 5.8 percent around the 44-nation region this year.