As the Vietnamese economy continues to navigate through turbulent waters in the global economic landscape, recent statistics from the General Statistics Office of Vietnam have revealed a significant uptick in the Consumer Price Index (CPI). In May, the CPI experienced a year-on-year increase of 4.44%, surpassing April’s modest rise of 4.4%. This marked the highest inflation rate in Vietnam since January 2023. Among 11 essential goods and service categories, there were notable price hikes in seven categories, while three saw prices decline, and one maintained stabilityEducational services surged by a staggering 8.7%, pharmaceuticals and healthcare services rose by 6.87%, and housing and construction materials increased by 5.49%. Furthermore, in the first five months of the year, the CPI reflected a 4.03% year-on-year increase, with core inflation rising by 2.78%.
In line with these inflationary concerns, Prime Minister Pham Minh Chinh convened a meeting focused on managing fiscal and monetary policies aimed at stabilizing the macroeconomic environment
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There is an urgent need to control inflation while catalyzing economic growth and managing budget deficits, public debt, and government debtDuring the meeting, Chinh pointed out that the domestic macroeconomy in Vietnam has remained stableThe industrial production index asserted a 6.8% growth compared to last year, highlighting the industrial sector's resilienceIn addition, public investment funding has seen considerable success, with foreign direct investment registering at USD 11.07 billion, marking a 2% increase compared to the same period last yearThe positive impact of exports on the economy is becoming increasingly evident.
Nonetheless, amid fluctuating global economic conditions, Vietnam’s economy faces profound challengesFor the second consecutive month, inflation has surpassed 4%, escalating living costs and placing significant strain on daily consumer spending
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The rising prices of essential commodities such as food and daily products are tightening the budgets of ordinary familiesTake basic grains, for example; fluctuations in their prices directly impact dietary costs, affecting overall market stability.
Adding to the economic woes, the Vietnamese dong witnessed a dramatic depreciation against the US dollar in May, reaching an all-time lowThis decline has adversely impacted Vietnam’s trade dynamicsGiven the country’s reliance on a plethora of imported raw materials and goods, the weakened dong has led to soaring import costsManufacturing enterprises that depend on imported components now face significantly escalated production costsThis, in turn, compresses profit margins and may lead to rising product prices, negatively impacting their competitiveness in the market
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On the export front, while currency devaluation could theoretically bolster exports, the ongoing global economic slowdown and unstable external demand hinder Vietnamese exporters from reclaiming sufficient benefits from the currency's depreciation.
To counter these intricate economic challenges, the State Bank of Vietnam (SBV) has taken decisive action, recently elevating the reverse repurchase rate to 4.5%. This strategy aims to attract more capital back into the banking system by raising the cost of capital, thereby contributing to the stabilization of the dong's exchange rateAn increase in the reverse repurchase rate tends to persuade financial institutions to deposit more funds with the central bank, ultimately reducing the supply of dong in the marketThis could, theoretically, help stabilize its value through supply and demand dynamics
As of the end of May, the average price for USD in the domestic free market hovered around 25,464 VND per dollarData indicates a 1.15% month-to-month increase in the dollar price index for May, alongside an average growth of 5.24% over the first five months, underscoring the ongoing devaluation pressures facing the dong.
Responding to these challenges, the State Bank of Vietnam had already implemented a range of robust intervention measures as early as AprilTo alleviate demand pressures for the dollar, the bank sold approximately USD 400 million in foreign currency, which helped to increase dollar supply and lessen the downward pressure on the dongConcurrently, the bank has tightened market liquidity through adjustments in market operations and government bond rates, which may also suppress inflation’s further escalation
Additionally, many banks in Vietnam raised their deposit interest rates in April, incentivizing the public and investors to deposit funds, thereby enhancing the dong's attractiveness and guiding capital back to VND assets; a move with a positive impact on exchange rate stabilityHowever, despite these proactive measures, Vietnam’s economy still grapples with uncertainties, warranting close observation of future economic trends.
Experts in Vietnam's economic landscape assert that the current inflation rate remains manageable; however, various internal and external factors have caused it to spike to the highest levels in 16 monthsAdjustments in electricity tariffs, healthcare expenses, and education service prices, coupled with the impending salary increases for civil servants set to take effect on July 1, are predicted to exert upward pressure on inflationConsequently, controlling inflation presents a formidable challenge
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