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Central bank should adjust policies to lower rates
Vietnam’s central bank should flexibly adjust monetary policies so interest rates can be lowered, said Tran Hoang Ngan, a member of the National Advisory Council for Financial and Monetary Policies, in an exclusive interview with Tuoi Tre.
Though Resolution 11, which was issued on February 24 to tame inflation and stabilize the macro economy, said the management of monetary policies should be careful enough to allow businesses to maintain jobs for workers resulting in an economic national growth of 6 to 6.5 percent this year. However, these policies have been tightened in the face of growing inflation.
How tight are our monetary policies?
With a projected annual growth rate of 6 percent this year, the amount of money pumped into the economy must rise 16 percent, which is still much lower than the previous normal rates of 25 to 30 percent.
However, the State Bank of Vietnam (SBV) has just raised the amount by 1 percent, meaning Vietnam’s economy needs more money.
Since the consumer price index (CPI) and economy may grow about 12 percent and 5.43 percent, respectively, in the first 5 months of this year, the SBV must pump more money into the economy.
But even if the SBV pushes the pumping of money to its annual limit, it will only be sufficient for our projected growth and inflation rate.
So, how and when will interest rates fall?
Since the targeted credit growth of 20 percent this year is fixed, the SBV should decide when and how much to use its 16 percent quota from now until the end of the year.
It should not wait until the situation gets worse in the coming months, but pump in money and then draw it back timely and effectively so inflation can continue to be tamed while market liquidity is still guaranteed, thus lowering the risk of hiking interest rates caused by the liquidity problem of the banking system.
How about administrative measures, should depositing interest rates be adjusted?
I don’t think they will work as expected.
Personally, I think the SBV should scrap both the ceiling depositing rate and the intention to set the ceiling lending rate.
It will make the market more transparent since imposing such ceiling rates will only push more banks to join the heating-up interest rate war and try all the ways to break SBV’s rule to attract more depositors.
We can learn from the 2008 lesson, since with such ceiling-lending rates, banks will set up new unannounced systems of fees charging borrowers.
With current depositing rates of 16 to 17 percent, plus 3 percent operating costs, no banks can lend it at 18 percent.
But when the ceiling depositing rate is abolished, the people will carefully consider which bank to deposit in since the higher rate, the higher risk, while credit insurance cannot pay them off.
Is there any conflict in taming inflation and pumping more money into the economy?
We don’t apply a loosened monetary system here; just apply the tightened one with more flexibility.
Inflation this year resulted from annual credit growth rates of 25 to 30 percent in previous years and the rising prices of commodities on intentional markets.
Since credit growth this year will not be more than 20 percent, the flexible monetary policies will recover the appropriate rates for groups of borrowers.
The rate should be 14 to 15 percent for manufacturers and exporters, 16 to 18 percent for traders, and 22 to 25 percent for normal consumers and stock investors.
In Thailand, the rates are 6 to 7 percent for manufacturers and exporters and 16 to 17 percent for normal consumers.
Is there any other reason for the interest rate hike?
For years we have applied the positive real deposit rate, which is higher than the inflation rate and thus benefiting depositors more than borrowers.
Those sets of policies also hammer the stock market since investors ask their dividend payment to be higher than the bank depositing rate.
With such causes, the effect is that we encourage consumption rather than manufacture.
In other countries, it is opposite since they apply positive real lending rates which in turn boost production and create more jobs for their economies.
We should tail such policies to attract more investment to manufacturing, while making the U.S. dollar and gold less attractive to hold by adjusting the FX rate and other sets of monetary policies.
More money will then be channeled into manufacturing sector, thus benefiting the whole economy.
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