Many factors help to control inflation

Dr. Nguyen Duc Do, Vice President of Institute of Economics and Finance, Student of Finance.

How do you comment on the impact of continuously reducing operating interest rates on inflation control?

Currently, money supply growth is at a low level. The total means of payment as of June 20, 2023 only increased by 2.53% compared to the end of 2022, lower than the period of the Covid-19 pandemic. Due to weak aggregate demand, low credit demand, banks are also afraid to lend due to concerns about bad debts. This causes a sharp decline in the currency turnover rate. Moreover, despite reducing the operating interest rate, the real interest rate is still too high. According to the announcement of the State Bank (SBV), the average lending interest rate until mid-June 2023 is 8.9%. With the inflation rate over the same period currently at 2%, the real lending interest rate is 6.9%, which is higher than the GDP growth rate as well as the average real interest rate of the period 2013-2021 is 5.9% and 4.6%.

Along with the low money supply, facing with the difficulties of the economy and export market, the aggregate demand is weak, the exchange rate is stable because the world dollar is in a downtrend, while the oil price is difficult to increase sharply... but Vietnam The South is having a high trade surplus… These are the factors that will help curb inflation in the last six months of 2023, even into 2024.

With this development, the fact that the State Bank continued to reduce the operating interest rate, thereby increasing the money supply, inflation remained under control. With the current domestic and international economic context not very positive, along with the SBV's caution in making monetary policy over the past time, inflation in 2023 is likely to continue to decrease, and The target of controlling inflation below 4.5% this year will certainly be accomplished.

Many factors can affect inflation, including the increase in basic salary which will affect the market price situation, sir?

First of July is the basic salary period for which the increase is applied. However, this salary increase only applies to a part of cadres and civil servants, not to the entire economic sector, especially employees at enterprises. Wage growth is also low. Moreover, under the influence of more than two years of Covid-19, the economic downturn will exhaust the resources of the people, so vthe growth rate of spending will not be large, resulting in no impact on inflation.

What impact will have when the VAT reduction from 10% to 8% for some items, sir?

In theory, the reduction of VAT will help lower the cost of goods and services, and the input and output prices of businesses will also decrease. However, reducing VAT is a one-time reduction, while inflation is a dynamic issue, so reducing VAT has an impact on reducing market prices, but the impact on inflation is not large. Controlling inflation requires the overall management of the whole market, along with a synchronous and flexible coordination between fiscal and monetary policies.

Thank you Sir!