There is a great risk if relying too much on monetary policy in the context of declining aggregate demand. Source: Internet.

Timely and “right disease”

At the Government-local conference to evaluate the work of the first 6 months of the year and implement the plan for the last 6 months of 2023, the Government agreed to move monetary policy from a state of "tight and firm" control at previous times to the state of "flexible, loosened". Prime Minister Pham Minh Chinh also noted that implementing a more flexible and loose monetary policy requires focus, focus, and control.

After this conference, keeping the "promise", on July 15, the Government issued Resolution 105/NQ-CP on tasks and solutions to remove difficulties for production and business, continuing to promote administrative procedure reform, tightening discipline and discipline. In particular, the Government requested the State Bank (SBV) to assume the prime responsibility for, and coordinate with ministries and agencies in, implementing proactive, flexible, and effective monetary policy tools to facilitate liquidity for credit institutions; continue to reduce interest rates, especially lending rates (striving to reduce at least about 1.5-2%), research and apply to both new and outstanding loans.

Previously, only in the first 6 months of the year, the State Bank had 4 times reduced from 0.5-2% for operating interest rates, thereby bringing the average deposit interest rate down from 0.7-0.8%. , the average lending interest rate decreased from 1-1.2% compared to the end of 2022. Recently, the SBV has also adjusted the credit growth target in 2023 for credit institutions with a system-wide allocation of about 14%.

With this number, Maybank IB Securities Company (MSVN) estimates that, according to the new target, the size of credit that can be disbursed in the second half of 2023 on average is about VND 180,000 billion per month, higher than the figure. 122,000 billion VND if calculated according to the growth target of 11% announced previously. Many experts even expect that the State Bank will have at least one more reduction in operating interest rates from now until the end of the year to support the economy.

According to experts, these moves are very timely, "catching the right pulse and prescribing the right medicine", meeting the urgent requirements to remove difficulties in liquidity and credit, promote recovery, and develop business products and consistent with practice.

DauAnh Tuan, Deputy General Secretary, Head of the Legal Department, Vietnam Confederation of Commerce and Industry (VCCI) shared: “I envision the business context right now as dry fields” and the Government is trying to create a source of water to irrigate these fields. Because business activities need capital, capital for businesses like farming needs water. When there is a lack of water, it is clear that agriculture cannot develop, just like businesses without capital will certainly have difficulties."

He also stated that, even in 2022, capital flows for businesses will face many difficulties, including capital flows from corporate bonds. Since then, a series of difficulties have been pouring down on businesses from the world market, such as reduced orders, many difficult business activities, businesses facing many difficulties, borrowing money from banks. The interest rate is very high...

“In the last period, the interest rate has been in the period of ten percent, but for normal business activities, ten percent is difficult, let alone accumulate and develop," VCCI Vice Chairman stated.

Coordinate and choose the right “dosage”

Currently, the money supply (M2) of the whole country has only increased by 2.7%, lower than the level of 3.8% in the same period last year and much lower than the level of 7% in 2019. Vietnam's cash flow in the first 6 months Nam also only reached 0.67 times, which is equivalent to the low cash flow of the whole year of 2022. Along with that, by the end of June, new credit growth increased by 4.73%, while the target for the whole year is suggested to be 14-15%. Thus, even though half a year has passed, credit has only gone less than a quarter of the way, showing that the economy's ability to absorb capital is weak.

From this fact, many experts believe that monetary policy is not a "universal key" to solving difficult problems for businesses as well as the economy. Some experts even said that it would be the biggest risk to rely too much on monetary policy in the context of declining aggregate demand, because it would make the asset quality of the financial and monetary system worse can spread to the real economy, causing inflation risks. Economic expert Dr. Vo Tri Thanh, Director of the Institute for Research on Brand Development and Competition, said that if you want to have multiple goals, you must have multiple tools, so monetary policy is important, but not everything.

In such a context, policy coordination has continued to be emphasized from the recommendations of experts to the direction and administration of the Government and the National Assembly. According to Dr. According to Vo Tri Thanh, economic recovery needs to be combined with many policies such as stimulating consumption demand, supporting workers, stimulating tourism demand, promoting public investment, and solving difficulties for export ...

In fact, the choice and use of which tool depends on each time. For example, at the time of formulation of Resolution 43/2022/QH15 of the National Assembly: Regarding fiscal and monetary policies to support the Socio-economic Development and Recovery Program by the end of 2021, almost all socio-economic activities have come to a standstill. Therefore, monetary policy in that context has very little effectiveness, therefore, tight monetary policy and loose fiscal policy are appropriate. In the current period, production and business have recovered somewhat, but the status can be changed and the difficulties of enterprises in terms of capital and cash flow are very clear, so it is necessary to flexibly loosen the currency.

In addition, many businesses have emphasized that the important issue is absorption when coordinating monetary policy with other policies. Policy coordination must also take into account the clearing of barriers and speeding up the settlement of administrative procedures. Many experts also recognize that monetary policy must pay attention to the "dosage" of easing in the face of impacts from the context of inflation control, exchange rate management, system safety, etc. Moreover, flexibility to operate, loosen money, not lower standards, must control not to let "easy" money flow into risky areas.

The good news is that from now until the end of the year, due to the negative seasonality and economic factors, the money supply is forecasted to be stronger, and the money cycle will be faster. The story of inflation in Vietnam is considered "assured", so the use of policies to restore and stimulate growth will be favorable. Currently, capital flows are still being tried to pump out the economy through preferential credit packages, along with policies on tax and fee reduction. However, businesses suggested that the policy delay should be shortened so that the support can quickly come to life. At the same time, enterprises themselves also need to have transformations, restructurings, market searches, etc., in order for the support to be effective and on the right track.