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Deflation will not occur in Vietnam: expert
Takeshi Hachimura, Chief Advisor of the Technical Cooperation Project on Strengthening the Capability of the State Bank of Vietnam, funded by the Japan International Cooperation Agency, believes that what is happening in Vietnam should not be called ‘deflation.’
Mr Hachimura said that he does not agree with the opinion that the decrease of the consumer price index (CPI) in October shows deflation occurring in Vietnam (the CPI was very high from January to September, and then decreased in October).
In principle, deflation occurs when the total supply is higher than the total demand, which leads to price decreases, production capacity decreases and recruitment demand.
The world’s financial market is now in turmoil, and the governments and central banks of the world are facing major difficulties. Though concerns have been raised regarding the serious deflation in the US and Europe, Mr. Hachimura does not think that the deflation will occur in Asia, especially in Vietnam.
However, he said that the concerning thing now is the slowdown of the economic development.
He went on to say that the decrease of the CPI in October in comparison to September should be seen as a good sign, which shows that the national economy has been going on the right track. If Vietnam continues running the national economy in such a cautious way as it is currently, Vietnam will be successful in curbing inflation. There are reasons to believe that the CPI increases will be smaller due to the high interest rates and the prices in the world market, especially for crude oil, have been decreasing.
The uncertainties of the US and European financial markets will certainly affect the global economies, including Vietnam. Vietnam’s exports to the US, which currently account for 20% of total exports, will decrease. However, Mr. Hachimura believes that Vietnam’s economic growth will not be made considerably worse.
In the short-term, it is likely to see the foreign direct investment (FDI) in Vietnam decrease. However, in the middle and long-term, as Vietnam has great potential, it is believed to bear temporary impacts only.
When asked to comment on the recent move by the State Bank of Vietnam to loosen the monetary policies, Mr. Hachimura said that it is now the right time to loosen monetary policies, rejecting the idea that it is too early to do that when the CPI increase is still high above 20%.
He also said that SBV has sent strong massages to the domestic and international markets at a time when concerns were raised about the possible impact of the US economic recession. The rumor regarding the monetary crisis in Vietnam was spread last summer, however, are not being talked about any longer.
TBKTVN
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