Inflation pressure is only moderate, monetary policy does not need to be changed

Dr. Nguyen Duc Do Deputy Director of the Institute of Economics - Finance, Academy of Finance,

What pressure do you think monetary policy in Vietnam will be under when many countries around the world have implemented monetary tightening?

Many current comments say that operating interest rates are under pressure and may be adjusted by the State Bank this year. In my opinion, the operating interest rate is not affected much. The key lies in the interbank market to keep liquidity and regulate the money supply at banks. Of course, the fact that many countries, including the US, have increased interest rates and tightened monetary policy to curb inflation, which has a certain influence on our country, especially on the exchange rate. However, in the past few days, the State Bank has properly siphoned VND through the T-bill channel, reducing pressure on VND. This shows that the State Bank is still operating monetary policy to support the economy's recovery and growth.

Could you tell me, how will domestic inflation affect the management of monetary policy?

The inflation index in the first half of 2022 in Vietnam was at a low level, 1.25%, far from the Government and National Assembly's target of operating 4% inflation in 2022. Moreover, inflation increased mainly due to the rapid recovery of the economy and the return of service - tourism industry, plus high prices of raw materials and petrol. Therefore, inflation pressure in our country is only moderate, there is still room to support economic growth and recovery.

For the second half of 2022, currently gasoline price rises seem to have slowed, decreasing by 10-15% compared to the beginning of the year. The price of raw materials for some products is also decreasing. If the panmic is basically controlled the pressure on inflation in our country will gradually decrease. Previously, there were also many concerns about import inflation, but it is clear that domestic commodity prices only increased by 2% and production input prices also increased slightly, so this is not a problem.

Regarding monetary policy, according to the State Bank, deposit interest rates in the first half of the year only increased by 0.09% - a very low increase. If inflation goes up, the SBV can control it through stabilizing the foreign currency exchange rate. Therefore, I think that the SBV's operating interest rate does not need to increase this year; if it does, it should be in 2023.

Does monetary policy in the remaining six months of 2022 need to change?

In my opinion, the current monetary policy management of the State Bank does not need to change much. The State Bank should continue to operate flexibly and proactively in response to developments in the international financial situation.

Monetary policy is currently making important contributions to economic support, helping businesses recover through credit capital flows. Businesses still want banks to reduce lending interest rates, so the implementation of the 2% interest rate support program from the state budget can help reduce lending interest rates and businesses can access cheap capital. As a result, credit growth this year may be at 14-15%, depending on the extension of credit growth limit  (room) for banks from the State Bank.

Thank you Sir!