Control inflation from flexibility of policy

	Managing balance between exchange rate and inflation
	Managing the balance between the exchange rate and inflation
	Should monetary policy shift from "tight, cautious" to "loose, cautious"?

Implement solutions and measures on management to stabilize prices. Photo: H.Diu

Maintain inflation reduction target

According to the General Statistics Office, the average consumer price index (CPI) in the first six months of 2023 rose by 3.29% year-on-year. Notably, the CPI in this period tended to decrease year-on-year due to reasonable price management, many important commodities such as petrol, transportation, etc have reduced prices, helping to curb the increase of CPI. Moreover, the quick, timely, synchronous and drastic intervention of the management agencies helped the market avoid sudden price rises.

As a result, the average core inflation index in the first six months of 2023 increased by 4.74% year-on-year. Inflation continued its downward trend while inflation in many countries remained at a high level. Therefore, Vietnam is not considered a country with high inflation.

In addition, inflation pressure is also less "stressful" thanks to the smooth operation and coordination between fiscal policy and monetary policy in the management of the financial and monetary market.

Although Vietnam is also facing many difficulties similar to the world economic situation, monetary policy has gone "upstream". Contrary to the continuous interest rate increases of countries such as the US and the European Union (EU) since the beginning of the year, Vietnam has reduced operating interest rates four times with a reduction of 0.5-2%. Vietnam provided flexible monetary policies. As a result, the money supply into the economy was moderate, the exchange rate was stable, The State Bank of Vietnam (SBV) has net withdrawn hundreds of trillions of dong) through the open market treasury bill channel and bought about US$6 billion to increase foreign exchange reserves to US$95 billion.

In the administration of the Government and the Prime Minister in recent years, the harmony and reasonable balance between growth and inflation, between supply and demand has always been focused. The Government, Prime Minister, Deputy Prime Minister - Head of the Steering Committee for Price Management have also issued many documents directing ministries, central and local agencies to implement solutions and measures on price management to stabilize prices, limit fluctuations in the price level that have negative impacts on socio-economic development, production and business activities and people's lives. Therefore, experts and regulators both believe that inflation in the whole year of 2023 may reach the target set at the beginning of the year, and curbed less than 4.5%. Many international organizations also forecast Vietnam's inflation in 2023 at 3-5%.

Afraid of "imported inflation", but opportunities in danger

Because inflation of countries around the world remains high, with an economy with a large openness like Vietnam, the concern about "imported inflation" is always present. In fact, the economic development rate is slowing down, and exports are also falling because other countries' markets reduce imports in the context of reduced consumer demand, while our economy depends heavily on imported raw materials. Therefore, domestic price movements are closely associated with fluctuations in world prices of raw materials, which are high and unpredictable.

Regarding the domestic market, from the beginning of this July, there have been many factors that put pressure on the price level. Specifically, a 20% increase in basic salary can lead to an increase in the prices of other goods and services in the household; the price of tourism services will continue to recover after the pandemic is controlled, and the price of necessities will increase at the end of the year.

However, in the face of danger, Vietnam still has many favorable factors to help curb inflation, not only in the end of 2023 but also in 2024. According to economist Vu Vinh Phu, inflation will reduce if the world gasoline price does not have strong increases, only ranging from US$70-75 /barrel, the production of goods, especially agricultural products and food serving the domestic market and exports have a good trend according to the forecast. Along with that, many supportive policies of the State for businesses will start to take effect from the third quarter of 2023, helping to improve the costs of enterprises. Some other expenses such as education, health care, clean water may increase but at a reasonable level... In addition, the interest rate level has room to decrease, especially when the banking sector is struggling to stimulate credit demand.

Faced with the above context, a representative of the Price Management Department (Ministry of Finance) said that the Ministry will continue to be proactive and closely coordinate with other ministries and local agencies to drastically implement measures on price management in the the principle of prudence and flexibility and well perform the advisory work to the Prime Minister and the Steering Committee for Price Management. At the same time, ministries, central and local agencies must also actively work together and closely monitor price and inflation movements in the world, promptly warn of risks causing domestic inflation; prepare adequate sources of goods to ensure timely provide to people's needs, especially necessities; organize the effective implementation and supervision of the price declaration and listing measures; continue to develop documents detailing and guiding the implementation of the Law on Prices (amended)…

At the last regular press conference in the second quarter of 2023 of the Ministry of Finance, Deputy Minister of Finance Nguyen Duc Chi also emphasized that the important solution to do well is communication to solve the psychological problems of consumers before the time of salary increase, price increase, in order to stabilize psychology, control inflation expectations.