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PM adopts anti-inflationary measures
Prime Minister Nguyen Tan Dung has approved a variety of tighter fiscal and financial measure in a bid to bring inflation under control and narrow the widening trade deficit.
"The measures will help pull more money out of circulation," the Deputy Head of the Central Institute for Economic Management, Vo Tri Thanh, told Viet Nam News. "However, more needs to be done to control growing inflationary pressures."
Following the recent currency devaluation, the Government added to those pressures by recently announcing upcoming increases in electricity rates and fuel prices.
On Feb. 21, HCM City estimated inflation this month had reached 1.61 per cent against January, or 9.22 per cent over February a year ago. Nationally, the inflation rate reached an annualised 12.17 per cent in January, the fastest pace in 23 months.
Among measures adopted by the Government yesterday, Dung vowed to cut State budget expenditures by 10 per cent by restructuring capital projects and delaying non-essential or ineffective works.
He also approved the State Bank of Viet Nam proposal to lower the target for credit growth in the commercial banking system from 23 per cent to 18-19 per cent. Credit growth last year reached 27.65 per cent, pushing outstanding loans to 140 per cent of gross domestic product (GDP).
State Bank of Viet Nam Governor Nguyen Van Giau said that the lower pace of credit growth and tigher fiscal policies would cut the total supply of money in circulation by approximately VND110 trillion (US$5 billion) and help reduce the trade deficit by $3-4 billion. Last year's trade deficit exceeded $13.2 billion, an amount equal to 10 per cent of GDP.
An executive of partly-equitised Vietcombank, who asked that his name be withheld, warned that policies aimed at cooling economic growth, while counter-inflationary, could have an additional downside of increasing unemployment and poverty rates.
The five-year Party Congress has targeted annual economic growth at 7-7.5 per cent.
"The Government sees economic stability as the most important thing at this time, so, as a banker, I think tighter monetary policy and 18-19 per cent credit growth is acceptable," said the Vietcombank executive. "The message of tighter monetary policy will initially stabilise public sentiment, and then interest rates will go down."
"It's still too early to forecast how banks will response to the new target or how interest rates will go," Asia Commercial Bank deputy director Nguyen Thanh Toai told Viet Nam News. "We need to know specifics, and we need more time to calculate the capital demand of the market."
In an attempt to deliver a clear message of tighter monetary policy, the central bank last week raised the refinance rate – one of five key policy rates used to manage the monetary market – by 2 percentage points to 11 per cent, although the prime rate was kept unchanged at 9 per cent.
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