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SBV Governor asserts: Monetary policy is on right track
“After 5 months of implementation of the 2011 Socio-Economic Development Plan and nearly four months of implementation of Resolution No.11 of the Government, the initial achievements are very good. The implementation is on the right track and in line with the goals set by the Government and the State Bank of Vietnam (SBV)”, SBV Governor Nguyen Van Giau said in his most recent press interview. Following is the full text of the interview.
Question: Could you please tell us what the outstanding features have been in SBV’s management since earlier this year, especially the implementation of Resolution No.11 of the Government?
Answer: Under Resolution No.11, the SBV is assigned to untertake four sets of important tasks as follows: Firstly, pursuing a tight and prudent monetary policy; harmoniously combining the monetary policy and the fiscal policy in order to control inflation; managing to keep the credit growth rate of below 20% and the total liquidity rise of about 15-16% with priority being given to credit extension for agricultural and rural development, exporters and supporting industries, and small and medium enterprises; and cutting down the pace and proportion of loans for the non-productive sector, especially the real estate and securities industries. Secondly, actively, flexibly and effectively managing the monetary policy instruments, especially interest rates and money supply to contain inflation. Thirdly, flexibly managing exchange rate and the forex market by market forces; enhancing the foreign exchange management with necessary measures to require institutions and individuals, especially the state-owned economic groups and general corporations, to sell their foreign exchange revenues to and to buy foreign exchange from banks in cases of their reasonable demands; ensuring the adequate availability of foreign exchange, stabilizing the exchange rate, meeting the requirements of the productive and business sectors, and increasing international reserves. Finally, taking measures to strictly manage gold trading; tight control of gold business activities; in the second quarter of 2011; and submitting the Decree on gold trading management to the Government for issuance in the second quarter in the direction of permitting certain major gold importers, eventually doing away with gold bar trading in the parallel market, and effectively preventing the cross – border gold smuggling.
After 5 months of implementation of the 2011 Socio-Economic Development Plan and nearly four months of implementation of Resolution No.11 of the Government, the initial achievements are very good. Firstly, the credit growth rate in the first 5 months reached 6.92%, lower than that of last year (7.46%). And as compared to the target of below 20% for the entire year, it can be confirmed that credit growth is on the right track and in line with the set target. In particular, in the context of meeting the objective of inflation control, credit extension has been prioritized for the productive sector. The credit growth rate for agricultural development and export reached 25% (Wle the overall credit growth rate increased only by 6.92%). As of late May, the credit proportion for the non-productive sector was 16.91%, while that at end 2010 was 18.87%. Obviously, the achievements are on the right track to meet the goals set by the Government and the SBV.
Secondly, the Government has highly appreciated SBV in stabilizing the foreign exchange market, keeping the exchange rates within the trading band publicized by the SBV. It is notable that SBV has been able to buy a remarkable amount of foreign currencies over the past few months. Thirdly, the gold market has been very stable, and the domestic gold price has been close to and sometimes lower than the world price.
Q: It is argued that the total liquidity and credit growth rate in the first five months is relatively low. What is your idea about this argument?
A: the credit growth rate in the first five months was 6.92%. In my opinion, it is not low in the context that GDP growth rate in the first five months increased by 5.6%, and is expected to be up by 5.6-6% in the second half of the year. Moreover, while priority is being given to inflation control, this credit growth rate is appropriate.
The low rise of the total liquidity is due to fluctuation in deposits. However, the SBV has strictly monitored for flexible management.
Q: The Government has recently adjusted the targeted inflation rate (CPI) of 15%, and GDP growth rate of 6%. How do these adjustments affect the SBV management this year and when can the interest rates be reduced?
A: Basically, all the scenarios do not change but we have to be very flexible, especially in the implementation of the four sets of important tasks assigned to the SBV by the Government, especially the targeted credit and total liquidity growth rates.
As far as the interest rates are concerned, the Government issued Resolution No. 83 on the Government's regular monthly meeting in May with the conclusion that the negative impact of high interest rates on production and business of enterprises and households is inevitable , since no country which suffers from high inflation can keep interest rates low. In order to reduce the aggregate demand, it is necessary to maintain high interest rates and cut down the credit growth rate.
In Resolution No.83, the Government required the SBV to properly set quarterly and monthly targets of credit and total liquidity growth rates by market forces and in line with practical and seasonal conditions. The SBV urged commercial banks to reach consensus in economizing operational costs to gradually lower interest rates, avoiding unfair competition, and developing their plans of institutional restructure with the aim of promoting the qualitative, efficient and prudent banking industry.
In principle, when CPI is gradually declining, the SBV will use its management instruments to also gradually cut down interest rates so as to maintain a relatively stable condition rather than immediately changing the policies and interest rates.
Q: Many commercial banks have expressed their hope that the SBV will extend the timeline of cutting loan outstanding for the non – productive sector down to 22% for a certain period of time, since they do not have enough time to recover their loans. What is your comment ?
A: Right at the beginning of this year, the SBV informed commercial banks of this intention for their preparedness and repeatedly issued warnings about credit risks from the non – productive sector. Currently, 20 domestic commercial banks still maintain a loan outstanding ratio of over 22% each for the non – productive sector, with two banks maintaining the ratio of 50%. I can say for sure that certain commercial banks will hardly fulfill this obligation. However, when we pursue a set policy for all , it should be fairly treated without discrimination. All the violators will be dealt with severe sanctions.
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