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Central bank sees ‘tight’ monetary policy until year-end
The central bank said this week that it envisions a “tight” monetary policy until the end of the year, even as evidence indicates that inflation is slowing and the country’s trade deficit is coming under control.
The State Bank of Vietnam has raised interest rates three times this year, with the latest increase to 14 percent in June.
Vietnam shouldn’t reduce interest rates this year because the nation’s economy needs more time to recover from “excesses” such as high inflation and a growing trade deficit, HSBC Holdings Plc said this month.
“With the implementation of government policies including monetary policy, macroeconomic developments have shown positive signals,” central bank governor Nguyen Van Giau told an International Monetary Fund and World Bank meeting in Washington on October 13.
The monthly inflation rate in the first half of 2008 averaged 2.9 percent, Giau said, according to a transcript of his remarks posted on the website of the IMF’s Hanoi office. For the subsequent three months, the rate has averaged about 1 percent, Giau said.
Monthly trade deficits have narrowed from an average exceeding US$2 billion in the first half to less than $1 billion per month in the second half, he said.
“However, from now to the end of 2008, the world and domestic economies may have many complex developments, especially the effects of the US financial turmoil,” Giau said.
“Therefore, the government continues to implement tight monetary and fiscal policy but in a flexible way to help control inflation, stabilize the macroeconomic situation, and ensure social security and sustainable development,” the governor said.
No rate references
Giau did not make any specific references to interest rates in the text of his remarks. Lower-than-expected recent credit growth and slower inflation provide some support for considering lower interest rates, said Le Xuan Nghia, director of the central bank’s Banking Development Strategy Department.
“But we will continue watching closely the development of both global and local markets for now, then will decide later this year or early next year,” Nghia said, in a telephone interview Friday.
The “rapid” increase in inflation earlier in the year as well as in the country’s trade deficit represented threats to Vietnam’s macro-economic stability, Giau said.
“The government considers inflation control as the first policy objective,” he said. Economic growth is “still at a high level compared with many other countries,” Giau said.
Gross domestic product expanded by an annualized 6.5 percent in the first three quarters of the year, down from 8.2 percent in the same period a year earlier, according to the General Statistics Office.
Economic growth began to slow this year amid what Morgan Stanley termed “aggressive” tightening in monetary policy. The New York-based bank said in May that the country may face a currency crisis, while JPMorgan Chase & Co. said that the key to Vietnam’s short-term prospects was maintaining depositor confidence in local banks.
“The money market and foreign exchange market are stable,” Giau told the IMF and World Bank. “Credit and total liquidity have a slower trend.”
Thanhnien
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