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Central bank brace for rocky road in 2009
Ensuring the security of the financial system and controlling inflation were among the top achievements of the State Bank of Viet Nam in 2008 and are the foundation for attempts to prevent recession in 2009. State Bank Governor Nguyen Van Giau spoke to about the banking market and expectations for the new year.
What were the rationales for monetary policy in 2008?
In 2008, the global economy experienced unpredictable turbulence. During the first months of the year, prices elevated to high levels. Then, in mid-September, the financial crisis broke in the US then spread widely, with impacts inevitable to Viet Nam.
To deal with the situation, the central bank had to apply a tighter but still flexible policy to support the Government to curb inflation for a short period, control the trade deficit and maintain reasonable economic growth.
Monetary policy was managed and exerted in line with market principles under State management, which successfully controlled the flow of money in circulation, and ensured reasonable credit growth and a pretty stable exchange rate. The State Bank policy was signalled clearly to help credit institutions, individuals and businesses prepare plans.
What about the rapid change in interest rates?
Last year, the central bank managed the prime rate and interest rate mechanism flexibly to ensure security in accord with economic targets. In the first seven months of the year, the tightened monetary policy prioritised taming inflation.
Gradually, the prime rate was raised from 8.75 to 14 per cent, the refinancing rate was moved from 6.5 to 15 per cent and the discount rate from 4.5 to 13 per cent annually.
In the latter part of the year, due to the impacts from the global financial and economic crisis, monetary policy had to be changed to prevent economic recession domestically. The prime rate was lowered to 8.5 per cent, the refinancing rate to 9.5 per cent and the discount rate to 7.5 per cent. These adjustments in turn helped commercial interest rates to abate.
Lending interest rates at commercial banks are now ranging at 7-10 per cent yearly, making it easier for enterprises to access credit. Deposit interest rates at the same time have fallen to a more reasonable level, balancing the interests of depositors, banks and borrowers.
What are you doing to ensure stability of the banking system, in light of the collapse of some major world institutions?
The global financial crisis has posed many challenges to our economy as well as the banking system. However, credit institutions domestically have been running safely. None of them is failing due to lack of liquidity. Most banks have capital adequacy ratios of at least 8 per cent and non-performing loans at 3-4 per cent of total outstanding loans.
Confidence of companies and individuals in the banking system is reported to stand high. In 2008, total deposits increased by over 30 per cent, while credit grew at 21 per cent.
What are you doing to help keep the country from falling into recession?
Many recent reports say that the global economy is still facing a hard time. The global and domestic economies are confronting more challenges. However, the National Assembly and the Government of Viet Nam are determined to curb inflation, stabilise the economy and maintain the growth rate at about 6.5 per cent.
The major mission of the central bank in 2009 is to contribute to reaching these targets. The central bank plans to manage monetary supplies flexibly to prevent recession and control inflation; improve credit quality, bank governance, and banking laws and technology; and co-operate with the ministries to ensure cohesive fiscal and monetary policies.
Improving statistics and forecasting so policy makers can quickly react to domestic and global events; having credit institutions restructure their business to ensure money goes first to manufacturing, exports, agriculture and small- and medium-sized enterprises; enhancing non-cash payment systems; continuing to equitise State-owned banks; enforcing the supervision and inspection of banks; and strengthening co-operation with the international community.
In 2008, the governor of the State Bank of Viet Nam was elected chairman of the IMF/World Bank Meeting of the Assembly of Governors and Annual Meeting 2009. How will Viet Nam prepare to conduct these meetings this year?
The vote indicated the strong confidence of the global community in the achievements of Viet Nam during the renewal period. In the future, the central bank will actively co-operate with the Secretary Committee of the IMF/WB Meeting and the host nation of Turkey to prepare documents and finalise the agenda and plans to conduct meetings at the session.
VNS
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