Vietnam's credit cycle and inflation trends have been extremely volatile and subject to capital inflows and asset market booms. The central bank's response to these has been both aggressive tightening and aggressive loosening of monetary policies. During the boom in 2007 and early 2008, portfolio inflows and equity and real-estate rallies caused the central bank to reduce credit growth and raise interest rates. Economic slowdown, market correction and capital outflows in late 2008 led the central bank to aggressively cut rates. Fiscal stimulus in early 2009 loosened credit growth and revived investment in asset markets. Now, with the risk of asset bubbles growing and inflation expectations rising, the central bank has kept monetary policy on hold and is monitoring credit growth, which has slowed considerably since the end of the cap on commercial loans. Falling food prices helped ease inflationary pressures in Q2 2010, easing concerns that inflation will top double digits in 2010.
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