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Difficulties in monetary policy still remain

Released at: 16:33, 09/05/2018

Difficulties in monetary policy still remain

Photo: Hai Van

Despite hurdles, the banking system of Vietnam is positive.

by My Van

According to Mr.Pham Thanh Ha, Head of Monetary Policy Department at the State Bank of Vietnam (SBV), monetary policy is still difficult. He made this statement at the banking forum Sustainable Development 2018.

In addition, he said that the central task of monetary policy management is to stabilize the value of money through the inflation target, as stipulated by the State Bank of Vietnam (SBV). In the past few years, SBV has achieved certain successes in stabilizing the macro economy that have supported economic growth.

In the last 10 years, inflation has been controlled well. It declined from double digits to single digits in 2008 and continued to remain stable from 2012 until now. In fact, in 2017 the average inflation rate was 3.53 per cent, which is lower than the target set by the National Assembly (about 4 per cent).

In addition, interest rates have fallen sharply since 2012 and remained steady in 2017. Interest rates on priority sectors continue to fall. Credit growth is suitable for macro balance along with credit quality and focuses on priority areas of production. Moreover, the credit policies of the economic sector are practically effective and support sustainable GDP growth. It reached its highest level in 10 years.

The central rate was flexibly managed, synchronously combining monetary policy tools, limiting speculation and holding foreign currencies. SBV continuously bought large amounts of foreign currency to increase the amount of foreign reserves. The amount of cash flowing into circulation is neutralized contributing to stabilizing inflation, interest rates and exchange rates.

In addition, the monetary and foreign exchange markets are stable and inflation is controlled, which anchors inflation expectations and strengthens the confidence of the economy and of investors in the Vietnam Dong. International organizations highly value the stability of the banking system in Vietnam. Moody's has even raised the credit rating of Vietnam's banking system from "stable" to "positive."

Mr. Ha insisted that the macroeconomic results of 2017 are the results of the overall efforts of the economy, the drastic direction of the government, and the stable macroeconomic environment that was maintained from the past. This result reflects the significant contribution of SBV's monetary policy.

He also pointed out that there are many factors that affect the stabilization of the inflation target of 4 per cent in terms of world commodity prices. Oil prices in particular and adjusted prices of state-managed commodities consumption increases are just two factors that affect inflation.

To handle and neutralize these pressures and risks, it’s necessary to follow and closely monitor inflation to promote coherent coordination between fiscal and monetary policies, and price control to keep inflation at 4 per cent, thus creating a solid foundation for maintaining macroeconomic stability.

At the beginning of 2018, SBV set the objective of implementing an active, flexible and prudent monetary policy in close coordination with fiscal policies. Other macroeconomic policies aim to control inflation in accordance with the target, stabilize the macro economy, and contribute to support economic growth at a reasonable level. This ensures the liquidity of the credit institution, stabilizing the money and foreign exchange markets.

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