Find a balance for controlling inflation and managing interest rates

	Vietnam’s macro-economy stays stable, inflation controlled: official
	Control false information about prices causing market instability
	Inflation tamed but risks remain: experts

Monetary policy has closely coordinated with fiscal policy to control inflation. Photo: ST

Don't be subjective with inflation

According to a report on price management from the Ministry of Finance, in the first 9 months of 2023, contrary to the trend of continuing to implement tightened monetary policies by central banks of other countries, world interest rates remain at high levels, The State Bank (SBV) has continuously adjusted policy interest rates four times (March 15, April 3, May 25, June 19) to support production and business and promote economic growth.

Thanks to that, the overnight lending interest rate in interbank electronic payments and loans to compensate for capital shortages in clearing payments of the State Bank of Vietnam for credit institutions decreased by 200 basis points (currently at 5%/year), refinancing interest rate decreased by 150 basis points (currently at 4.5%/year) and rediscount interest rate decreased by 150 basis points (currently at 3.5%/year). The maximum interest rate applicable to demand and term deposits in VND less than 1 month decreased by 125 basis points (currently at 0.5%/year), the maximum interest rate applicable to term deposits from 1 month to less than 6 months in VND decreased to 4.75%/year; The maximum short-term lending interest rate in VND of credit institutions for borrowers to meet capital needs to serve a number of economic sectors and industries decreased by 150 basis points, currently at 4%/year.

In the first half of October 2023, commercial banks continued to announce a sharp reduction in deposit interest rates, along with offering many preferential lending programs and lending interest rate supports. In particular, the group of 4 state-owned banks with nearly 50% of the mobilization and credit market share has brought the 12-month term interest rate down to 5.3%/year - this is a historic level, lower than the previous Covid-19 period.

The Government's report sent to National Assembly delegates on issues related to the banking sector in early October commented that monetary policy has closely coordinated with fiscal policy and other policies in controlling inflation and stabilizing the macroeconomy. However, the report also emphasizes that although inflation is showing signs of slowing down, basic inflation is still at a high level so it cannot be subjective.

It is necessary to maintain loose monetary policy

In particular, the world economic context is currently experiencing many unfavorable developments due to the influence of the escalation of the conflict between Hamas and Israel, so the inflation situation will certainly be greatly affected. Currently, oil prices, gold prices, foreign exchange rates, food prices, etc are all under increasing pressure, which will affect inflation management. Dr. Bui Duy Tung, lecturer in Economics, RMIT University, commented that basic inflationary pressure is still a significant concern, so this situation puts the monetary policy management agencies into having to consider what to do to control inflation and maintain economic growth.

According to a newly released economic report by HSBC Bank, Vietnam is vulnerable to recent fluctuations in the global oil market. HSBC has raised its average inflation forecast for 2023 to 3.4% instead of the previous 3.2%. HSBC experts no longer expect the SBV to cut interest rates this year, because the previous conditions that guaranteed a further 50 basis point interest rate cut are no longer there. HSBC expects the SBV to keep the policy interest rate stable at 4.5% until the end of 2024, unless there are external shocks.

At the socio-economic discussion session at the meeting of the National Assembly Standing Committee on October 16, 2023, explaining the paradox of "low inflation - high interest rates", SBV Governor Nguyen Thi Hong said, in interest rate management, monetary policy tools must be based on inflation targets, forecasts of world and domestic inflation trends and requirements for exchange rate stability and system safety. If the inflation trend flares up, monetary policy has the task of preventing and preparing for a tightening trend. Emphasizing that we cannot be subjective with inflation, the Governor of the State Bank said that it is necessary to look at the long-term trend. For example, the US Federal Reserve (Fed) relies on inflation indicators to decide whether to increase or decrease interest rates.

From the above issue, according to experts, the management of interest rates and inflation requires balance and close monitoring. Currently, inflation in our country is still below the target level, so maintaining loose monetary policy is necessary to support growth. In recent days, the State Bank has continuously withdrawn net money from the open market. Abundant market liquidity is also one of the conditions for banks to reduce mobilization interest rates, thereby reducing loan interest rates.

Announcement of conclusions of Deputy Prime Minister Le Minh Khai - Head of the Price Management Steering Committee at the Price Management Steering Committee meeting on the results of price management and administration in the first 9 months of 2023 and the orientation of price management and administration in the last months of 2023 clearly stated that in the fourth quarter of 2023 there is still room to control inflation according to the target set by the National Assembly at 4.5%, but it is still necessary to continue to closely monitor economic changes and world inflation to promptly warn of risks and propose appropriate response measures to ensure supply and stabilize domestic prices. It is necessary to continue implementing proactive, flexible, timely, and effective monetary policy, coordinate closely and in harmony with fiscal policy and other macro policies.