UPDATE 1-Vietnam lifts fuel prices, raises inflation risk

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HANOI, July 21 (Reuters) - Vietnam raised domestic fuel prices by as much as 36 percent on Monday to bring them closer to international costs, raising the possibility of even higher inflation, more interest rate rises and slower economic growth.

Retail gasoline prices were raised by 31 percent. A litre of the popular 92-octane gasoline grade now retails at 19,000 dong ($1.15) per litre, up from 14,500 dong per litre previously, an official from top importer and retailer Petrolimex said.

Petrolimex also raised retail prices of diesel by 14.3 percent to 15,950 dong ($0.97) per litre and the price for fuel oil by 36.8 percent to 13,000 dong ($0.79).

The fuel hike came less than two weeks after the government pledged to keep fuel prices unchanged until the end of the year and cover losses by state-run importers despite mounting pressure from high world energy prices.

"We are not getting any support for the petrol price hike from the company," a taxi driver said as he tried to move his car hopelessly in the noisy crowd in front of a petrol station in Hanoi that had brought traffic to a standstill.

The driver failed to reach the petrol pump before Petrolimex staff changed their selling prices at 0300 GMT.

Vietnam, which has been severely strained by double-digit inflation for eight consecutive months and a widening trade deficit, had subsidised fuel consumption by keeping prices unchanged since February as it sought to rein in inflation.

"It makes sense for fuel prices to go in line with world oil prices but as a result inflation will remain on the rise," Tai Hui, an economist at Standard Chartered in Singapore said.