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The International Monetary Fund warned Vietnam on Wednesday that it risks hard-won market stability by trying to cut lending rates too fast, and said it should maintain the level of the dong currency to safeguard financial calm.
"The repeated announcements by the government about the need to lower the commercial lending rates may be counter-productive," the IMF said in a regular review of Vietnam's economic health.
"A lack of coordination between monetary and fiscal policies, or the appearance thereof, would amplify market skepticism," it said in a statement.
"The government, therefore, needs to convince market participants that its priority rests with macroeconomic stability. For this purpose, staff believes that maintaining the current stable exchange rate ... should be the immediate goal for the government," the IMF said.
State Bank of Vietnam governor Nguyen Van Giau said last week that lending rates were expected to drop. But Giau said they were not falling quickly at present because banks were cutting deposit rates slowly.
The IMF said Vietnam's exchange rate regime policy should be reformed over the medium term.
"A move from the current system that is based on a basket of currencies including those of regional trading partners may be appropriate," the report said.
The IMF review also said there was room for further reduction in Vietnam's budget deficit. Total investment spending was expected to fall this year by three percentage points of GDP from the 2009 level to about 11 percent of GDP, the report said.
The IMF projected GDP growth of 6.5 percent this year and 6.8 percent in 2011.
