Vietnam needs to attain a gross domestic product (GDP) growth rate of at least 6.5 percent to steer clear of deflation risks, an expert said on June 30 given the slowing inflation rate over the past year.

At a workshop in Hanoi, Deputy Director of the Academy of Finance’s Institute of Economics and Finance Nguyen Duc Do said with 6.5 percent GDP growth, inflation could be around 1.68 percent – an appropriate figure for the contemporary economic context.

If the economy expands at 6-6.25 percent, the possibility of deflation is real, he noted.

As GDP increased by 6.28 percent in the first half of 2015, deflation is more likely than the rebounding high inflation, which is why the Government set the GDP growth target of 6.5-7 percent for 2016-2020, he added.

A report at the workshop further explained that the consumer price index (CPI) in June climbed 0.55 percent against December last year and 1 percent from the same period of 2014. Inflation pace in the last year slowed considerably and Vietnam’s economy is now close to 0 percent inflation rather than the targeted ceiling rate of 5 percent.

In the first two quarters of this year, 2 percent VND/USD exchange rate adjustments led to a CPI hike of 0.6 percent while the 8.42 percent augmentation in electricity prices contributed a 0.22 percent gain to the index. As such, the slow six-month inflation was mainly driven by costs, not by demand.

Do said since 2008, Vietnam’s economic growth has been continually below its potential of 6.5 percent, meaning the increase of aggregate demand was lower than that of aggregate supply, dragging inflation down.

He stressed interest rates need to be cut down, especially lending rates since the current positive real lending rate is about 7.5 percent, much higher than the actual GDP gain, hampering business efforts to broaden their operations.

Spending money on buying bonds will make it more favourable to reduce interest rates and boost credit, he noted.-VNA