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Experts: Stop dollar fever, reduce interest rates to curb inflation
Now is not the time to discuss the devaluation of the dong/dollar exchange rate by 9.3 percent, but the time to curb the inflation.
People have every reason to worry about the high inflation rate in 2011, especially after Nguyen Tien Thoa, Director of the Price Control Department under the Ministry of Finance admitted that keeping it at seven percent, as targeted for 2011, would be difficult.
Associate Professor Tran Hoang Ngan, Member of the National Advisory Council for Finance and Monetary Policies:
Vietnam is facing a “double inflation”. First, the world’s economy is recovering after a crisis pushing the prices up, while Vietnam has to import big volumes of products and itstrade gap is reaching $84 billion, 80 percent of GDP. Second, the inflation rate in Vietnam has been influenced by the exchange rate fluctuation.
In order to curb the inflation, the Government needs to send a strong message that it is trying to stop the “dollar fever” and force the black market’s exchange rate down. The dollar prices on the black market are sky high, not because of the short supply, but because of the speculation.
Regarding the dollar interest rates, it is necessary to set up the ceiling deposit interest rates at low levels and to raise the compulsory reserve ratios on dollar deposits. The low deposit interest rates and the high lending interest rates will discourage people from depositing dollars. This will help ease the dollarization.
In the long term, in order to curb the inflation and have stable economic growth, the State should encourage private businesses to invest in transport infrastructure, push up the equitization of state owned enterprises and reduce the state ownership at joint stock companies.
It is a necessary to adjust and marketize the prices of key goods and services. However, the adjustment should be carried out under strict legal supervision. Currently, the law enforcement in the finance and monetary markets remains weak, which has a negative impact on the socio-economic life. For example, even though banks are told to keep the deposit interest rate at 14 percent at the highest, hey still offerhigher interest rates.
Nguyen Minh Phong from the Hanoi Socio-Economic Research Institute
There are two special things in the market. The first one is that the prices did not go down after Tet, even though the demand decreased after the long holiday.
It is very difficult to stop the price increases. People, who sighed with relief that they avoided it before Tet, are now facing a price increase wave
The Government has announced that curbing inflation would be the priority for 2011, but it has not given concrete solutions. In the immediate time, the familiar measures, mainly aimed at helping the poor, such as setting up low electricity prices for the first 50 kwh used, increasing the volumes of stored goods and providing food at stabilized prices, will be implemented.
When allowing the prices of some essential goods to be raised, the Government needs to increase the competition on the market. If we do not liberalize the market and increase the competition, the pressure on prices will persist.
The Electricity of Vietnam has been insisting on raising the electricity prices, saying it needs more capital to invest in power projects. However, its argument is unreasonable, because enterprises are not allowed to use consumers’ capital to develop projects. Instead, the State or enterprises need to issue shares or borrow from other sources.
The second is that the large price increases have already strongly affected the consumers, especially the poor and small enterprises.
Dr. Dinh The Hien, a financial expert
We need both short term and long term measures to curb the high inflation.
The State should be determined to reduce the deposit interest rates to 10-11 percent per annum, so as to reduce the lending interest rates to 14-15 percent per annum. The suggested interest rates can still bring real profit to depositors as the targeted CPI increase is seven percent, and the actual CPI increase may be higher, at 9-10 percent.
vietnamnet
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