VietNamNet Bridge - The trade deficit figures reported in mid-May and the consumer price index (CPI) could cause difficulties for the State Bank in monetary policies.

According to the General Statistics Office (GSO), despite the sharp petrol price, the CPI only increased by 0.16 percent in May compared with April, and 0.95 percent  compared with the same period last year. 

As such, the inflation rate in the first five months of the year was 0.12 percent only, in comparison with last December, the lowest in 10 years.

GSO also reported that the excess of imports over exports soared to $3.7 billion in the first 4.5 months of the year. The General Department of Customs (GDC) has reported the trade deficit was $1.87 billion in the first half of May.

Meanwhile, a report which was released just one week before showed that the trade deficit in the first four months of the year was $2 billion only and the exchange rate was cooling down.

However, soon after the new statistics about the higher than expected trade deficit were released, the dollar price rose again, both on the official and flea markets.

The increased imports of consumer goods are attributed to the stable dong/dollar exchange rate in 2013-2014 and the depreciation of many other hard currencies against the dollar. Imported consumer goods became cheaper than one to two years ago as they are paid in dong, which encouraged consumption.

The trade deficit is obviously the hardest pressure on the dong/dollar exchange rate, and it challenges the State Bank’s plan to curb dong depreciation by no more than 2 percent this year. Besides, the fluctuations of the euro, yen, pound, Swiss franc and Canada dollar was unpredictable.

The euro, for example, appreciated last month from $1.05 per euro to $1.15 per euro, but it dropped to $1.1 per euro.

While the trade deficit was on the rise, the inflation rate was unprecedentedly low. The low 0.2 percent inflation rate in the first five months of the year was lower than any rate predicted by agencies and economists.

If the inflation rate is 3 percent this year, or 0.4 percent a month in the next seven months, the short-term deposit interest rate could be lowered by one percent to 4 percent, which would pave the way for banks to slash lending interest rates.

However, analysts say, easing the dong interest rates at a time when there is pressure on the dong/dollar exchange rate is not what the watchdog agency wants to see. The low dong rate would encourage dollarization, which would negate the central bank’s efforts to stabilize the dong.

TBKTSG