Theoretically, no matter whether the monetary policy is tightened or loosened, it still has certain impacts on the national economy. If the policy is loosened, the total amount of money in circulation will increase and lead to a rise in inflation. But if it is tightened when businesses remain in a fix, production will likely slow down again. So it is essential to weigh up the pros and cons of a proper monetary policy.
Dr. Nguyen Thi Mui from Viettinbank said that recently, the Vietnamese Government has adopted a number of stimulus packages while the State Bank of Vietnam (SBV) has taken a score of measures to limit an overheated credit growth to get the national economy back on the right track while maintaining stability and ensuring social welfare. However, there has been a huge gap in growth between the national economy (at 4-5 percent) and credit (at 30-50 percent).
Limiting credit growth is applied in high-risk areas such as consumed loans, securities investments and real estate. This aims to force commercial banks to consider exactly which borrowing needs are safe or risky.
According to Cao Sy Kiem, a member of the National Monetary Advisory Council, the banks’ recent decision to increase interest rates on mobilised loans is in line with the real situation because when the national economy bounces back, there will be a great demand for capital. Meanwhile, businesses want to grasp this chance to enjoy the low interest rates, therefore, banks have increased the interest rates on loans to ensure a sufficient supply of capital for production and businesses.
It is supposed that the ceiling loan rate all remain the same after the banks decide to raise deposit interest rates. In Mr Kiem‘s opinion, banks must accept this and share the difficulties with businesses. It is unacceptable that while businesses face many difficulties for lack of capital, banks earn huge profits. 48 out of 52 banks have agreed to keep interest rate stable, which will affect business sourcing capital but that will be made up by the inter-bank market and discounted capital from the State Bank, so adequate capital for the economy is ensured.
Dr Nguyen Thi Mui said that the economy is showing clear signs of recovery. In the circumstances, Vietnam must maintain a reasonable economic growth rate in combination with help from the banks to operate safely and sustainably. The monetary policy must closely follow the market and be strictly controlled by the State Bank, but it is flexible.
Inflation may rise due to the loose monetary policy but Cao Sy Kiem said that with this year’s rate of inflation estimated at 7 percent and GDP growth at 5 percent the situation is acceptable. These figures may change next year and the Government will come up with measures to adjust them. Mr Kiem added that with the current measures, including a looser monetary policy and a strictly controlled capital flow, inflation won’t get into two digits next year.
Mr. Kiem said this is what we are expecting to happen and planning to cope with in due course. However, inflation is not an urgent issue as the current major task is to prevent an economic depression.