Large Vietnamese brokerage cuts outlook over interest rate jitters

Hanoi: Thang Long Securities Joint-Stock Company, Vietnam's biggest brokerage, lowered its target for the benchmark index by 8.9 per cent on concern high interest rates will curb economic growth.

The forecast for the benchmark VN Index on the Ho Chi Minh City Stock Exchange was lowered to 469.50 from 515.11 to "reflect the risks that the economy and the stock market have been facing", Pham The Anh, chief economist of the Hanoi-based brokerage, wrote in a monthly report dated on Sunday.

The gauge has slid 7.2 per cent this year, the third-worst performer among Asia's 15 biggest stock markets, outpacing only China and Japan. Interest rates haven't been cut as low as requested by the government as inflation is on an "increasing trend and banks are still trying to mobilize capital," the State Bank of Vietnam said late last week.

"We believe there would be no surprise in the equity markets unless efficient measures are introduced to lower interest rates," according to the report. Interest rates stayed high in September, "threatening future economic growth", the report said.

Prime Minister Nguyen Tan Dung in May told the State Bank of Vietnam to order lenders to bring down borrowing costs to 12 per cent and cut the deposit rate to 10 per cent. The central bank in August devalued the local currency for the third time since November to curb inflation and a trading deficit.

Boost lending

The Southeast Asian nation needs to boost lending to meet its target for a 25 per cent increase in credit and 6.5 per cent expansion in the economy this year.

Vietnam's inflation quickened in September, the first acceleration in six months, with consumer prices climbing 8.92 per cent from a year earlier, according to figures from the General Statistics Office in Hanoi. Inflation has stayed above its targeted 8 per cent for eight straight months.

The 1.31 per cent increase in the country's consumer prices in September from the previous month was "a surprise", Thang Long's chief economist wrote in the monthly note.

Inflation will hurt the effort to lower interest rates and "eventually cause difficulties to firms in the first half of 2011", according to the note.

Among possible strategies for lowering interest rates, the government could limit new bond issuance in the primary market, or the central bank could buy back government bonds, Thang Long Securities said.