Monetary policy: “Smooth carpet” for the economic development

	"Buffer zones" for monetary policy
	Exchange rate won’t fluctuate strongly
	Exchange rates under less pressure, no sharp fluctuations

Facing challenges

In 2019, the world market continued to boom with a series of big events. The US-China trade war escalated and leaders of the two countries issued unexpected policies that made the market fail to respond. Besides, a series of developed and developing countries loosened their monetary policies and reduced interest rates. In a year only, the US Federal Reserve System (FED) lowered interest rates three times in July, September and October, while in 2018 FED launched four hikes. In particular, the domestic monetary market “panicked” when China increased the value of the renminbi to record levels in recent years.

Despite ups and downs, they did not create a "shock" for the local monetary market, except for sudden fluctuations of gold prices. Gold is one example when talking about monetary policy in 2019 to show efforts management agencies in the regulatory arena.

In June 2019, the gold price rose sharply when geopolitical instability led investors to seek gold as a "safe haven" for assets. Many experts expressed concern that the world gold price surpassed USD 1,500 / ounce and the domestic gold price must be up to VND 45 million / tael, or more. At this time, press information on financial and monetary markets was also "hot" for gold.

However, regardless of the fluctuation of prices, the domestic market is still quiet, there is almost no noise, or scenes of groups of people lining up to buy and sell gold as many years ago. Talking about this issue, Dr. Nguyen Duc Do, Deputy Director of the Institute of Economics and Finance (Academy of Finance), said unpredictable gold price fluctuations made investors "discouraged" and they could not find safety and profit to trade gold. The State Bank of Vietnam (SBV) also said that from 2014 until now, the economy did not have to use foreign currencies to import gold to intervene in the market.

The exchange rate chart between VND and USD in 2019 shows the exchange rate only increased sharply in a short time, then almost moved sideways. Source: Investing.

"Pressure" as interest rates also fall

There has been little downfall that has benefited the economy by lowering interest rates. In 2019, the State Bank of Vietnam issued many policies on interest rates. No longer being a "calling" or "encouraging" move, the State Bank of Vietnam implemented by giving a series of important decisions such as: reducing interest rates, reducing deposit and loan interest rates of credit institutions and reducing the compulsory reserve interest rates of credit institutions at the SBV. In addition, the SBV also said it regulated the liquid capital of credit institutions through offering valuable papers and offering SBV bills through open market operations, stabilising the money market.

Therefore, in 2019, banks reduced lending rates three times in priority areas. The biggest reduction was at the end of November, when the SBV decided to reduce maximum interest rates for deposits in VND and the maximum interest rates for short-term loans in VND of credit institutions for some fields and economic lines. After this decision, a series of banks from State-owned banks, big banks to medium banks all announced they would reduce mobilising interest rates and reduce lending rates to support enterprises at the end of the year. Although, these reductions made commercial banks suffer losses such as Vietcombank suffered a profit loss of VND 260 billion in the interest rate reduction in November, obviously, the above measures were not implemented, interest rates would be unlikely to be lowered. Currently, the lending interest rate in VND is popular at 6-9 percent for short term loans and 9-11 percent for medium and long term loans. But many businesses said they have to pay higher interest rates.

Experts said interest rates this year and the whole year will be under pressure, so the reduction requires great efforts from regulators and commercial banks. Financial-banking expert PhD. Nguyen Tri Hieu said banks must also be profitable, so a reduction in interest rates must create a balance for banks. Moreover, banks are also under pressure from inflation and exchange rates, etc., so the SBV needs to regulate as well as take measures to control the ability of money supply.

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Thus, just as an economist commented, "the SBV is getting smarter", which means the SBV has been regulating monetary policies reasonably, flexibly but not rigidly in one direction of tightening or loosening, but aiming to maintain market stability and market sentiment. Therefore, the problems of exchange rates, gold prices and interest rates have lessened pressure whenever the world market has unexpected fluctuations. Of course, every initiative and prevention is never redundant when risks are still lurking all the time, but the monetary policy is still a "smooth carpet" for the economy moving forward.