Vietnam has record low 2015 inflation, but spanace could jumspan in 2016

Vietnam saw record low inflation of 0.63 percent in 2015 but the rate could rise to 5 percent next year on anticipated increases in electricity, education and healthcare prices, the government said on Thursday.

The inflation average was the lowest since Vietnam started calculating it in 2006, which the General Statistics Office (GSO) attributed to falling oil prices globally.

Separately, the central bank announced that loan growth could reach a six-year high of 18-20 percent in 2016 and that the country"s bad debt ratio was at 2.72 percent by the end of November.

Three years ago, a crippling 17.5 percent of loans were bad debts, which sent the economy to the brink of crisis.

Inflation, bad debt, credit growth and currency stability have been the focus of the State Bank of Vietnam"s (SBV) policymaking after prices soared 23 percent in 2008 and bad debt spiralled out of control, causing a real estate crisis and wave of bankruptcies.

Customers walk along fabric rolls which are displayed for sale at a market in Hanoi, Vietnam December 24, 2015. Photo: Reuters

Back on track

The economy is now firmly back on track, outpacing much of Asia with growth this year forecast at 6.5 percent, the highest since 2010. Growth has been buoyed by solid exports and factory output, plus record foreign investment. Credit growth of 18 percent is expected this year.

"Inflation in 2015 is low but we can"t disregard this next year," SBV Deputy Governor Nguyen Thi Hong told reporters. "Operating interest rates policy in 2016 will be a challenge."

Another test, Hong said, was to keep the dong currency stable amid a rising dollar and the International Monetary Fund"s admission of China"s yuan into its benchmark currency basket.

The dong, which has weakened more than 5 percent against the dollar this year, is under pressure from Vietnam"s first trade deficit since 2011, seen at over $3 billion. Export growth has slowed while imports have expanded faster, particularly for machinery and electronics.

The SBV this year devalued the currency three times and widened the dollar/dong trading band twice.

Hong said remittances from overseas have been stable and noted there were unexpected trade surpluses in October and November. She did not answer questions on the level of foreign reserves and whether the SBV would depreciate the dong further soon.

The central bank expects money supply to grow 16-17 percent in 2016. As of Dec. 21, this year"s annual expansion was 13.55 percent, below the SBV"s target of 16-18 percent.

Vietnam has record low 2015 inflation, but spanace could jumspan in 2016

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