Prime Minister Nguyen Tan Dung has approved a variety of tighter fiscal and financial measures in a bid to bring inflation under control and narrow the widening trade deficit.
"The measures will help pull more money out of circulation," the Deputy Head of the Central Institute for Economic Management, Vo Tri Thanh, told Vietnam News. "However, more needs to be done to control growing inflationary pressures."
Following the recent currency devaluation, the Government added to those pressures by recently announcing upcoming increases in electricity rates and fuel prices.
HCM City on Feb. 21 estimated inflation this month had reached 1.61 percent against January, or 9.22 percent over February a year ago. Nationally, the inflation rate reached an annualised 12.17 percent in January, the fastest pace in 23 months.
Among measures adopted by the Government on Feb. 21, Dung vowed to cut State budget expenditures by 10 percent by restructuring capital projects and delaying non-essential or ineffective works.
He also approved the State Bank of Vietnam (SBV)’s proposal to lower the target for credit growth in the commercial banking system from 23 percent to 18-19 percent. Credit growth last year reached 27.65 percent, pushing outstanding loans to 140 percent of gross domestic product (GDP).
SBV Governor Nguyen Van Giau said that the lower pace of credit growth and tighter fiscal policies would cut the total supply of money in circulation by approximately 110 trillion VND (5 billion USD) and help reduce the trade deficit by 3-4 billion USD. Last year's trade deficit exceeded 13.2 billion USD, an amount equal to 10 percent of GDP.
An executive of partly-equitised Vietcombank, who asked that his name be withheld, warned that policies aimed at cooling economic growth, while counter-inflationary, could have an additional downside of increasing unemployment and poverty rates.
The five-year Party Congress has targeted annual economic growth at 7-7.5 percent.
"The Government sees economic stability as the most important thing at this time, so, as a banker, I think tighter monetary policy and 18-19 percent credit growth is acceptable," said the Vietcombank executive. "The message of tighter monetary policy will initially stabilise public sentiment, and then interest rates will go down."
"It's still too early to forecast how banks will response to the new target or how interest rates will go," Asia Commercial Bank Deputy Director Nguyen Thanh Toai told Vietnam News. "We need to know specifics, and we need more time to calculate the capital demand of the market."
In an attempt to deliver a clear message of tighter monetary policy, the central bank last week raised the refinance rate – one of five key policy rates used to manage the monetary market – by 2 percentage points to 11 percent, although the prime rate was kept unchanged at 9 percent. /.
"The measures will help pull more money out of circulation," the Deputy Head of the Central Institute for Economic Management, Vo Tri Thanh, told Vietnam News. "However, more needs to be done to control growing inflationary pressures."
Following the recent currency devaluation, the Government added to those pressures by recently announcing upcoming increases in electricity rates and fuel prices.
HCM City on Feb. 21 estimated inflation this month had reached 1.61 percent against January, or 9.22 percent over February a year ago. Nationally, the inflation rate reached an annualised 12.17 percent in January, the fastest pace in 23 months.
Among measures adopted by the Government on Feb. 21, Dung vowed to cut State budget expenditures by 10 percent by restructuring capital projects and delaying non-essential or ineffective works.
He also approved the State Bank of Vietnam (SBV)’s proposal to lower the target for credit growth in the commercial banking system from 23 percent to 18-19 percent. Credit growth last year reached 27.65 percent, pushing outstanding loans to 140 percent of gross domestic product (GDP).
SBV Governor Nguyen Van Giau said that the lower pace of credit growth and tighter fiscal policies would cut the total supply of money in circulation by approximately 110 trillion VND (5 billion USD) and help reduce the trade deficit by 3-4 billion USD. Last year's trade deficit exceeded 13.2 billion USD, an amount equal to 10 percent of GDP.
An executive of partly-equitised Vietcombank, who asked that his name be withheld, warned that policies aimed at cooling economic growth, while counter-inflationary, could have an additional downside of increasing unemployment and poverty rates.
The five-year Party Congress has targeted annual economic growth at 7-7.5 percent.
"The Government sees economic stability as the most important thing at this time, so, as a banker, I think tighter monetary policy and 18-19 percent credit growth is acceptable," said the Vietcombank executive. "The message of tighter monetary policy will initially stabilise public sentiment, and then interest rates will go down."
"It's still too early to forecast how banks will response to the new target or how interest rates will go," Asia Commercial Bank Deputy Director Nguyen Thanh Toai told Vietnam News. "We need to know specifics, and we need more time to calculate the capital demand of the market."
In an attempt to deliver a clear message of tighter monetary policy, the central bank last week raised the refinance rate – one of five key policy rates used to manage the monetary market – by 2 percentage points to 11 percent, although the prime rate was kept unchanged at 9 percent. /.
