Rising inflation poses challenge to businesses

A customer buys the US dollars at a bank in Hanoi. Experts said it is vital to keep the foreign exchange rate stable in order not to import inflation by increasing the cost of imports. (Photo: baochinhphu.vn)

Vietnamese businesses are expected to face headwinds from inflation, tightening monetary policy and a growing cost-of-living crisis in many of the country’s export markets, experts have warned.

A global slowdown seems imminent as central banks embark on the highest round of interest rate hikes in decades to tackle rising inflation, they said.

The risk of importing inflation is obvious due to rising global energy and commodity prices, which could cause a sharp downturn in global demand, they added.

Signs of this have been visible since the beginning of this year as the prices of imported fuels, materials and components increased significantly.

Vu Van Hoa, General Director of Dutch Technology JSC, an animal feed producer that imports raw materials, said the rise in global commodity prices and weakening of the Vietnamese dong (VND) against the dollar have sent costs surging.

Pham Xuan Hong, Chairman of the HCM City Textile and Garment Embroidery and Knitting Association, said Vietnam is one of the countries that are heavily dependent on imported raw materials and fuels.

The selling price of the USD at banks has increased by nearly 5% against the Vietnamese dong this year to beyond 24,000 VND.

Manufacturing activity grew at a slower pace as rising raw material costs and the worsening global outlook weighed on corporate sentiments.

While supply disruptions may have run their course, local exporters are also suffering from a slump in global demand as consumers tighten their spending due to high inflation.

Besides, many of Vietnam’s competitors in the region have allowed their currency to devalue even more strongly against the greenback, causing Vietnamese goods to lose their competitive advantage.

But this exchange rate weakness is sending imported inflation skyrocketing.

Nguyen Dinh Viet, Vice Chairman of the National Assembly’s Economic Committee, said the exchange rate management remains a big challenge this year for the central bank, and requires it to intervene when necessary.

To keep the exchange rate stable, the country needs to accept a higher interest rate.

At a meeting last week, Governor of the State Bank of Vietnam Nguyen Thi Hong said the central bank would continue to manage the pressures caused by external uncertainties.

Speaking at a recent meeting, Prime Minister Pham Minh Chinh said Vietnam would give top priority to curbing inflation, ensuring economic stability.

The global economy continues to face huge challenges due to a growth slowdown and rising inflation, forcing the central banks of the US, the EU, the UK, and Japan to hike interest rates, which has hugely affected other countries, including Vietnam, he said.

Vo Tri Thanh, member of the National Financial and Monetary Policy Advisory Council, said if Vietnam devalues its currency too quickly, it would benefit its exports but bring more inflationary pressure, challenging the Government’s efforts.

But keeping the currency overvalued would make its exports uncompetitive especially considering the currencies of its trading partners and competitors have weakened sharply against the dollar since the beginning of this year, he added./.