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* Rise expected after state increased fuel, power prices
* Economists expect further monetary tightening in Q2
* Trade deficit $1.15 bln in March -state-run news website
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HANOI, March 24 (Reuters) - Vietnam's consumer price index in March recorded its biggest annual increase in 25 months, leaping 13.89 percent from the same month last year, despite monetary tightening and plans for scaled back fiscal spending.
Economists said the persistence of upward price pressure could spur the central bank to increase key interest rates in the second quarter.
The government's General Statistics Office said consumer prices in March rose 2.17 percent from February, the biggest monthly rise since May 2008, on the back of hikes in fuel and electricity prices set by the state as well as higher food prices.
Macroeconomic instability has been a major concern for investors in Vietnam and played a part in decisions by the three major ratings agencies to downgrade Vietnam last year. The country suffers one of Asia's highest inflation rates.
The government last month unveiled a package of measures to curb inflation, trim the trade deficit and shore up a depreciating currency, including raising several interest rates and cutting credit growth targets.
Inflationary momentum was easing but the CPI will peak around the middle of the year, Barclays Capital economists Prakriti Sofat and Krishna Hegde wrote in a note.
"We remain bearish on inflation in the near term, expecting the headline rate to rise to 16-17 percent y/y by mid-year," they said.
DOUBLE-DIGIT HIKES
HSBC also expects inflation to remain high, even while it said the March increase was not a surprise after a 15.3 percent increase in electricity prices at the start of the month and double-digit hikes in fuel prices in late February.
"We expect inflation to pick up further in coming months amid surging global food and oil prices, especially since the Vietnamese government has recently appeared more inclined to let end-users bear the cost," HSBC economist Sherman Chan said.
During the second quarter, key interest rates could be increased by 200 basis points, both banks said.
Meanwhile, Vietnam's trade deficit was forecast to hit $1.15 billion during March, according to news reports quoting data from the statistics office. An official at the office declined to confirm the trade data, which is expected to be released publicly before the end of the month.
Exports increased 26 percent in March from a year earlier to $7.05 billion, while imports expanded 21.5% from March 2010 to $8.2 billion, the news website VNEconomy.vn reported.
VNEconomy.vn is the online version of the Vietnam Economic Times.
A report in the state-run Tuoi Tre daily citing Vietnam customs data said the trade deficit would drop to about $700 million this month. (Reporting by John Ruwitch, Ngo Thi Ngoc Chau and Ho Binh Minh; Editing by Richard Borsuk)