Vietnam Central Bank Warns of Rising Inflation, Rates Pressure

Vietnam’s central bank is facing mounting pressure to keep interest rates stable as the Iran conflict fuels inflation and raises banks’ funding costs, while the government’s 10% growth push drives credit demand.

“Deposit and lending rates are under pressure to rise, while the central bank must ensure businesses continue to have access to bank credit,” State Bank of Vietnam’s Deputy Governor Pham Thanh Ha said at a briefing in Hanoi on Wednesday.

The central bank is seeking to support the government’s 10% growth goal even as Vietnamese officials warn of increasing challenges. Weekend data showed an economy running hot, averaging 9% growth in the first three quarters, along with a surge in exports and foreign investment pledges.

“SBV still needs to sustain credit growth to support economic expansion while balancing the requirement to control inflation,” Pham Chi Quang, head of the monetary policy department, said at the same briefing.

Read More: Vietnam Warns of ‘Challenges’ to Hitting Lofty 10% Growth Goal

In the coming months, the central bank will “continue to pursue a proactive and flexible monetary policy, closely coordinating with fiscal policy to control inflation,” Ha said. SBV will closely watch the money market to ensure sufficient liquidity for banks, Ha added.

The red flags over inflation and investment add to warnings in August by the central bank, when it cautioned that rapid credit growth was outstripping banks’ ability to mobilize funds and creating risks to the stability of the financial and monetary system.

Total bank lending has risen 11.59% from the end of last year, Ha said. SBV is targeting credit growth of around 15% this year but has repeatedly said that could be adjusted depending on economic conditions.

Prime Minister Le Minh Hung said on Saturday the government remains committed to the double-digit economic growth target as he ordered ministries to fully disburse this year’s public investment spending and keep key projects on schedule, according to the government website .

Lenders are increasingly seeking fresh sources of funding to finance the nation’s growth ambitions and turning to offshore loans as they compete to provide liquidity to companies in one of Asia’s fastest-growing economies.

Read More: Vietnam Warns $77 Billion Funding Gap Is Risk to Stability (1)

Inflation quickened to 5.08% in September from a year earlier, with transport and construction costs remaining elevated due to the Iran war. That’s higher than the government’s intended cap of 4.5% this year and adds pressure on the SBV to prioritize price and exchange-rate stability.