The Government requires operating monetary policy tools to aim at removing difficulties and meeting the capital needs of the economy. Source: Internet.

Proactive, flexible, controlled loosening

The story of monetary policy in 2023 mainly revolves around interest rates and credit. Looking back at developments over the past year, we can see that high anchor interest rates from the end of 2022 to the first months of 2023 have caused great difficulties for businesses. The fact that many countries have promoted tightening monetary policies to control inflation has affected the exchange rate as well as the management of Vietnam's monetary policy. Therefore, this time, monetary policy must be flexible, cautious and firm to ensure the goals set by the National Assembly and the Government.

However, when the exchange rate and liquidity of the banking system stabilized, the State Bank of Vietnam "went upstream" to loosen monetary policy through four times reducing operating interest rates by 0.5-2% per year. Up to now, the State Bank said it has managed monetary policy proactively, flexibly, with controlled easing, in smooth coordination with expansionary fiscal policy.

The continuous adjustment to reduce operating interest rates is considered by experts and the business community to be consistent with market conditions to support the process of recovering economic growth, thereby supporting the reduction of lending interest rates, and increasing access to capital for businesses and people. According to the State Bank, up to now, interest rates have tended to decrease, with new deposit and loan interest rates of commercial banks decreasing by more than 2%/year compared to the end of 2022. Even by December 2023, the banking system has continuously announced a reduction in deposit interest rates to a record low in history, and at the same time launched many credit incentive programs for businesses and people.

Remember, during a working trip to Vietnam in July 2023, US Secretary of the Treasury, Ms. Janet L. Yellen highly appreciated the State Bank's efforts in modernizing and enhancing the transparency of the framework. Managing Vietnam's monetary and exchange rate policies to promote macroeconomic stability and ensure the safety and soundness of the banking system. Secretary Janet Yellen expressed that these solutions will enhance the adaptability of the Vietnamese economy to developments in the world financial market and external shocks. In fact, up to now, this statement has been implemented quite successfully.

To be wary of inflation, policies need to be synchronized

However, economic expert Dr. Vo Tri Thanh commented that reducing interest rates is not a "universal panacea", because the principle of easing will be to not let "money be easy". If loosened too much, the goal of promoting growth and production and business may be affected when this cash flow does not flow into production and business but "goes to financial assets".

Furthermore, low interest rates but credit growth in 2023 brings a "gray" picture, achieving very low growth in recent years. Although the cause of low credit comes more from the objective side with a difficult economy and reduced demand for investment and consumption, this is a problem that concerns monetary regulators and related agencies. The financial system has to "concern", since then many directions, solutions, and incentives for credit growth have been continuously issued.

On the other hand, monetary policy in Vietnam is a multi-target policy, both supporting economic recovery, controlling inflation, stabilizing exchange rates while maintaining stable interest rates, ensuring credit needs for the economy and keeping the banking system safe... According to experts, in recent times, monetary policy tools have been used quite a lot, so there is room for adjustment, especially reducing interest rates. There is not much management left. In particular, whether the State Bank will further reduce operating interest rates or not depends a lot on developments in inflation and exchange rates... Although inflation is not currently too worrying, it cannot be subjective or negligent, especially when the international market is still volatile, world commodity prices are still unpredictable.

Therefore, the "complaints" about difficulties in operating monetary policy are understandable, and may continue in 2024, so there needs to be policy synchronization to create overall strength for economic recovery and development.

Not long ago, the Article IV Consultation Team of the International Monetary Fund (IMF) recommended further loosening of monetary policy and that measures to promote credit growth during this period were not very effective but were not very effective, even creating additional risks. Because global interest rates will remain high for a long time and banks in Vietnam are facing increasing bad debts and high credit/GDP ratio. World Bank (WB) experts warn that if Vietnam continues to cut interest rates, it will increase the interest rate difference with global markets, potentially putting pressure on exchange rates.

Therefore, economic expert Dr. Can Van Luc commented that simply reducing interest rates is not enough to support businesses in the context of weak demand. Therefore, fiscal policies and welfare support must be synchronized with monetary policies to stimulate investment demand, credit consumption, and support economic recovery. In addition, it is necessary to remove difficulties in the real estate and corporate bond markets to remove cash flow bottlenecks. "Only when all these problems are removed can cash flow circulate and credit can circulate," this expert stated.

In addition, also related to monetary policy, in 2024 and the coming time, many businesses propose the need for more open credit packages and financial solutions to support businesses in accessing capital, while maintaining stability exchange rate determination to support import and export, and create more favorable financial tools for international trade activities such as letters of credit, money transfers, international payments...