VIETNAM CHAMBER OF COMMERCE AND INDUSTRY
Liên Đoàn Thương Mại Và Công Nghiệp Việt Nam
Wed, Feb 08, 2023, 08:56:00
In your opinion, what problems will monetary policy face in 2023?
In 2022, the world economy suffered from many abnormalities, but in my opinion, these difficulties are "accidents" in health and political conflict. There is no sign of a structural crisis. Therefore, the recovery will be better this year. This will have a positive impact on domestic monetary policy.
Currently, monetary policy still plays a key role in stabilizing the macroeconomy. Monetary policy is directly related to domestic production, especially domestic enterprises rely mainly on interest rates for production, business and export.
Therefore, for monetary policy, the pressure on inflation and exchange rate this year is not a problem but the interest rate. We should admit that Vietnamese enterprises are operating under the pressure of high lending interest rates, which may reduce their competitiveness in the domestic market compared with FDI enterprises.
The increase in interest rates in Vietnam is not due to inflation or credit room limit s but the reduction in the money supply. In 2022, our money supply only increased by over 7%, while nominal GDP was estimated to rise by 11.2%. The amount of money pumped into the economy in 2022 was not as much as in 2021, so it may cause difficulties in 2023.
To reduce interest rates, the money supply must rise, and the credit room is just an administrative measure to control the credit growth of the SBV based on the permanent money supply. Therefore, to achieve a growth rate of 6.5%, the economy needs a huge money supply. The SBV should consider and develop an action plan soon because the delay in monetary policy may be up to 6 months to 1 year.
The increase in the money supply may boost inflation; how must be the monetary policy consistent with related policies, Sir?
The increase in the money supply will push inflation, so the monetary authority should have a reasonable calculation. Although, this year, the Government has submitted to the National Assembly the inflation target of no more than 4.5%, which means that it has accepted higher inflation than the previous year, this may be a favourable "framework" for the SBV to increase the money supply and reduce interest rates.
However, I think that this year's inflation may be difficult to reach 4.5% because of the plunge of the current domestic consumption demand. Moreover, the SBV has effectively managed monetary policy to avoid inflation and macroeconomic instability, especially the exchange rate. The fiscal policies have also been regulated and adjusted; many financial policies have effectively supported people and businesses, helping stabilize and create favourable macroeconomic conditions.
To support businesses, how should the financial-monetary market be adjusted?
First, the interest rates can not be as high as the current rates. The Government and SBV aim to reduce interest rates in the next year. I think the appropriate deposit interest rate is only about 2-3%. The inflation is 4%, the deposit interest rate is about 6-7 %/year, which is reasonable, and the lending interest rate will not become too high for businesses.
In addition to stabilizing interest rates, the Governments, ministries and sectors should focus on providing solutions to restore the confidence of investors and people, thereby recovering the corporate bond market, stock market and real estate market. Also, the banking system should effectively handle bad debts and maintain a stable economy. I believe the management agencies should select goods, enterprises and projects for financial support. If those enterprises are supported, people and investors will restore their confidence.
I strongly agree with the direction of the Prime Minister in the recent meeting regarding the necessity of flexibility, proactivity and consistency among policy tools, including fiscal policy. Furthermore, there should not be a large distinction between objects of credit. For example, if we continue to control real estate credit and the bond market plunges, it may cause the bursting of a "bubble", thereby greatly affecting the banking system and monetary security. Therefore, the monetary security at this time must help recover the asset market.
Thank Sir!
