Vietnam greedy for too many different goals in setting up monetary policy

VietNamNet Bridge – The Vietnamese monetary policy always aims at many different targets, which, in some cases, are contradictory. As a result, the policy cannot bring the desired effects.

Vietnam, CPI, monetary policy, interest rate, inflation rate, GDP

Simplifying the monetary policy’s targets

The experts from the International Monetary Fund (IMF), who have been keeping a close watch over the Vietnamese monetary policy over the last many years, have commented that Vietnam always pursues too many goals with its monetary policy, from the economic growth, exchange rate stabilization and inflation congestion. Meanwhile, these are the contradictory things which should be approached through different ways.

The loosened monetary policy, for example, which expands credit rapidly, would help stimulate the national economy, but it would also cause a side effect – the high inflation.

Therefore, the IMF’s experts believe that it would be better to simplify the monetary policy’s targets. The State Bank, for example, has recently targeted a reasonable goal of controlling the inflation. The low inflation rates would help stabilize the national economy, thus bringing benefits to businesses.

A reasonable monetary policy would help create a good business environment in which the market performance is predictable for businesses. This would create favorable conditions for businesses to draw up their business plan, including the investment capital arrangement and labor recruitment.

Meanwhile, the low inflation would also benefit the poor and the old people who live on the stable and limited incomes.

IMF has also suggested that the dong/dollar exchange rate needs to be regulated in a reasonable way, to serve the economy which has been more deeply integrating into the world and has been heavily relying on foreign investment.

The State Bank of Vietnam has been advised to gradually remove the non-market measures to control the market, including the ceiling interest rate and targeted growth.

The side effects of the monetary policy loosening warned

The government and the State Bank of Vietnam have been advised to maintain and to pursue the policy on stabilizing the macro economy, making the banking system healthy and perfecting the legal framework for the monetary policy implementation.

The State Bank has done many things over the last two years when dealing with the problems in the national economy and the banking system. The inflation has been decreasing, while the banking system and the foreign currency market have been stabilized, and the foreign currency reserves have increased significantly.

However, problems still exist which require the government to strengthen the consolidation of the banking system, and to restructure the state owned enterprises.

The two goals prove to have close relations, since state owned enterprises play a very important role in the Vietnam’s national economy. They are also the big clients of banks and need to take partial responsibility for the bad debts.

Vietnam, after a long period of applying an easy credit policy which has led to the high inflation and the credit bubble busting, has taken important steps since 2011 to congest the inflation and stabilize the finance market in an effort to avoid the banking system crisis boom.

The widened gap between the VND and dollar interest rate has helped restore the confidence in the local currency, thus helping stabilize the exchange rate and increase the foreign currency reserves.

Ngoc Son

Vietnam, CPI, monetary policy, interest rate, inflation rate, GDP