Closing the first quarter of 2018, the Gross Domestic Product (GDP) growth reached 7.38 percent, the highest level in the past 10 years. As soon as this number is announced, many domestic organisations forecasted that Vietnam’s GDP growth will reach the 6.7 percent target set in 2018.
The Vietnam Institute for Economic and Policies Research (VEPR) has recently said that the economic growth of Vietnam will be 6.83 percent, while the National Financial Supervisory Commission (NFSC) predicted the GDP growth in 2018 of Vietnam to reach 6.9 percent-7.1 percent.
The question is that with such economic growth, how will the management authority operate the monetary policy from now until the end of the year?
Talking to reporter, Nguyen Xuan Thanh, director of Development at Fulbright University Vietnam said that Vietnam always wants a monetary policy that can achieve two goals including (1) maintaining macroeconomic stability, particularly stabilising the currency value and controlling inflation at low level, and (2) supporting growth.
“In 2017, particularly the first quarter of 2017, when the economic growth was low, the burden on monetary policy was very heavy when it came to supporting growth. However, when we look at the first quarter of 2018, the economic growth is good, even if the following quarters are not as good as the first quarter, Vietnam is still likely to meet the annual growth target”, said Thanh.
Accordingly, Thanh said that the monetary policy from now until the end of the year should not be loosened and should maintain the objectives such as ensuring low inflation and stabilising the dong.
Thanh also said that with the results achieved in the macroeconomic stabilisation in the recent time, the SBV should have a roadmap to adjust the monetary policy and credit instruments.
Explaining this, the Fulbright expert said that in the period from 2014 until now, due to moderate pressure of both stabilising the macro economy and restructuring the banking system, the monetary policy instruments are special and not follow the practices of the market economy as the tools are still administrative, including interest rate cap and credit growth quota.
The use of administrative measures helps the SBV manage more easily. There are also views saying that these measures should still be applied because the system still has many unresolved issues.
However, Thanh believed that if investors, enterprises and people are confident in the macroeconomic stability, it is time to adjust these administrative measures and replace them by indirect and more marketable tools. “For example, instead of setting the credit growth limit for each bank, the government can set an oriented credit growth target in which banks having adequate capital are not restricted to go over the limit and banks growing too fast and encountering inadequate capital are not allowed to further expand lending”.
As for the management of interest rates, instead of applying interest rate cap, the SBV may operate through the Open Market Operations, said Thanh.
Explaining more closely, Thanh believed that in the context when there are many weak banks, if lending growth is not limited, those banks can easily choose the measure to lend out more to overcome weaknesses. Thus, applying credit growth limit to restrict this situation is reasonable.
However, this administrative measure is ask-give mechanism. Each bank is assigned a specific limit and it must propose the SBV for expansion of the limit if needed. That will not bring competitive advantage for banks.
“For banks of which the scale is already large, it is not necessary to pursue too high growth; but for small banks with good potential, their credit growth ability is currently limited. Such administrative measure does not create healthy competition and motivation for banks”, said Thanh.
Accordingly, Thanh recommended that if the situation has actually been better and many weaknesses have been overcome, the SBV should soon announce the policy adjustment roadmap.
