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Experts believe Vietnam will continue tightly controlling credit in 2011
Economists believe that in order to curb the inflation rate at seven percent in 2011 as decided by the National Assembly, it is very likely that the government will tighten its monetary policies, at least in the first two quarters of the year.
According to Alan Pham, Chief Economist of VinaSecurities, the government has sent a clear message about the priority policies for 2011. The government has said that the top priority in 2011 will be stabilizing the macro economy, not the high economic growth rate. Therefore, Mr. Alan Pham believes that he has every reason to believe that monetary policies will be tightened until the end of the second quarter of 2011. This means that the central bank may consider raising the prime interest rate in order to control the inflation rate.
“If Vietnam can control the trade deficit, the targeted seven percent inflation rate in 2011 is within reach. Besides, the credit growth rate should be curbed at 23 percent,” an economist, who asked to be anonymous, said.
Le Tham Duong, Dean of the Business Administration Faculty under the HCM City Banking University, also said that the targeted credit growth rate clearly shows the will of the government in macroeconomic management. If the expected inflation rate is seven percent in 2011, the growth rate of outstanding loans should not be higher than 23 percent.
However, Duong still has worries about if the plan can be implemented. In 2010, Vietnam set targets of curbing the inflation rate at eight percent and obtaining the credit growth rate of 25 percent. However, Vietnam failed to fulfill its goal.
“The targeted 23 percent credit growth rate shows that the central bank is not aiming to expand credit, but is paying more attention to the quality of credit. This can also be seen in the new strict regulations,” Duong said, adding that he believes lending will be tightened in the first half of 2011 in order to control inflation.
Experts all say that the quality of credit should be seen as the most important factor in 2011. This means that loans should be going to production and business sectors, while banks should limit loans to the stock market, real estate market, and refuse loans for luxury needs.
According to Dr. Tran Du Lich, a member of the National Advisory Council for Finance and Monetary Policies, it is possible to slash the inflation rate from 12 percent to 7 percent this year, but this will take time. Therefore, Lich said that interest rates would not decrease as quickly as expected, and businesses should think carefully when using bank loans to expand their investments.
In fact, there are many prediction about the monetary policies that Vietnam may apply in the near future, during the first and second quarters of the year.
Bloomberg newswire on January 7 reported that the government of Vietnam was considering raising the compulsory reserves ratio in order to prevent high inflation.
Bloomberg reported that the new compulsory reserve ratio would increase sharply from 2-4 percent currently to 10 percent for US dollar deposits, and from 1-3 percent to 7 percent.
According to VnExpress, raising compulsory reserve ratio was a tool that a leader of the National Finance Supervision Council mentioned recently in a talk with local press agencies. The leader believes that the council will propose applying the compulsory reserve ratio as a necessary tool to help control inflation. He said that the compulsory reserve ratio on foreign currency deposits should be higher than Vietnam dong in order to lower the dong interest rates.
Meanwhile, in the latest move, the State Bank of Vietnam has released a notice affirming that the central bank still does not plan to adjust the compulsory reserve ratio at this moment.
vietnamnet
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