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Economists say interest rates, exchange rate will be stabilized
The National Finance Supervision Council has reassured the public by affirming that there will be no need to adjust the exchange rate further until the end of the year.
The most important message the Head of the National Finance Supervision Council Le Duc Thuy and his Deputy Head Le Xuan Nghia released at a recent workshop discussing the macro economy and the management of monetary policies was that the interest rate and the exchange rate will be stabilized this year.
Interest rates will go down from Q3
Thuy, who once worked as the Governor of the State Bank of Vietnam for many years, believed that if the measures to curb inflation initiated by the government will be followed strictly and this will soon bring the desired effects. There are many reasons for the high inflation rate, but the central bank must take the main responsibility for fighting inflation. Stabilizing the dong is one of the main functions of the State Bank stipulated in the laws.
According to Nghia, it is very likely that the interest rates will begin going down from the third quarter because, at the beginning of the year the government, announced it would tighten monetary policies. The government might have learned a few lessons from managing monetary policies in 2010. It tightened monetary policies in the first quarter of 2010, then loosened the monetary policies in the second and third quarters and tightened them again in the fourth quarter. As a result, the inflation rate was very high at over 11 percent.
The second reason that makes Nghia believe that interest rates will go down is that the government has decided to reduce public investment in government bonds to half of what it was in 2010. The investment capital will be transferred to the private economic sector. Especially, in 2011 the M2 supply will decrease sharply.
Regarding the worries about exchange rate fluctuations, Nghia said that the difference between the total revenue in foreign currencies and the total spending is always a positive figure, but the State Bank of Vietnam still has to sell foreign currencies to intervene with the market. The problem is that foreign currencies have been used to illegally import gold or keep it among the people. “We have discovered that there is an account with a balance of $260 million. This shows that people do not have confidence to sell dollars to banks,” Nghia said.
Nghia believes that Vietnam is completely capable of stabilizing the exchange rate, because the supply is profuse enough. The problem here is to regulate the sums of money in the most effective way.
Nghia has revealed that the National Finance Supervision Council has submitted a plan to the government to fight dollarization. Under the plan, it is necessary to restrict lending in foreign currencies and to restrict depositing in foreign currencies by raising the required compulsory reserve ratios on foreign currency deposits. If so, those, who have foreign currencies, will sell dollars to banks to keep Vietnam dong.
Nghia’s council believes that there is no need to adjust the exchange rate once more until the end of the year.
The economists have told businesses that though there are many big difficulties for businesses, they cannot foresee any serious problems that may harm the national economy. Businesses have been advised to cut down expenses to hold out until circumstances become better.
When asked “what should we do and when will the exchange rate go stabilized?”. Thuy said that businesses should temporarily delay their plans to expand business fo a short term. Since the government has been mustering the strength to fight inflation, the national economy will be stabilized soon.
According to the National Finance Supervision Council, the exchange rate adjustment would make the consumer price index increase by 1.1 percent, while the petrol price increase would make the CPI increase by 0.54 percent, and the electricity price by another 0.71 percent. This means that the three factors would lead the CPI to increase by 2.5 percent in total. Regarding food prices, experts believe that the prices will go down from March after a period of increasing due to the national calamities.
It is expected that the CPI will increase by nine percent this year.
vietnamnet
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