Should monetary policy shift from "tight, cautious" to "loose, cautious"?

	Maintain the “line of defense” against inflation
	"Upstream" monetary policy to support the economy
	Harmonious point for monetary policy rather than"trial and error"

Monetary policy management should aim to balance the goals of stabilizing the macroeconomy. Photo: Internet

The chaotic situation

In all government directives, monetary policy must always be conducted with certainty, proactivity, timeliness, flexibility, effectiveness, coordinated coherence, and effectiveness with expanded, rational, and focal fiscal policies. The government has entrusted the State Bank of Vietnam (SBV) with implementing solutions to reduce costs and interest rates for existing and new loans, enhancing access to capital and ensuring reasonable credit growth, focusing on growth drivers and priority sectors. These directives must be implemented with the overarching goal of maintaining macroeconomic stability, controlling inflation, promoting growth, and ensuring major balances

Such guidelines show the difficulties and challenges the economy faces, so all policies must be reasonable and create breakthroughs for the economy to recover. Given the monetary policy, the "matter" between stabilizing exchange rates and lowering interest rates has been weighed and measured many times. For example, in 2022, due to the heavy pressure of global devaluation of the currency and tightened monetary policies, domestic interest rates could hardly be reduced because, if the Vietnamese dong depreciates sharply, businesses' imports and export will have to suffer very negative effects, thereby having a strong impact on an economy with a large openness like ours.

Entering 2023, many central banks worldwide have shown signs of "breaking" the interest rate hike, although no information has been given regarding interest rate reductions. However, Vietnam has taken the lead. Accordingly, when exchange rates stabilize, and inflation slows down, the three "reverse flow" reductions in policy interest rates, with a decrease of 0.5-1.5% per year in March, April, and May 2023 by the State Bank of Vietnam (SBV), are considered bold steps. According to the SBV, the continuous adjustment and reduction of policy interest rates are flexible solutions that align with the current market conditions to support the process of economic recovery and growth as directed by the National Assembly and the Government, thereby continuing to direct the reduction of lending interest rates in the market, facilitating businesses and individuals in capital access, and contributing to driving economic growth.

Despite the recent interest rate level adjustment and the exchange rate stability, the credit growth rate has been very low for many years (except in 2020 due to the impact of the Covid-19 pandemic). In the first 5 months of 2023, the growth rate is only about 3%, although the main cause comes from the difficulties of businesses, so this is still a painful problem and needs a radical solution to overcome.

Cautiously loosening, supporting growth

Despite some outstanding achievements in coordinating monetary and fiscal policies, economist Mr Can Van Luc emphasized the need for even closer coordination, combined with improvements in the investment and business environment and administrative reforms. According to this expert, monetary policy needs to be more multi-objective, focusing more on monetary-financial stability, transitioning from "tight, cautious" to " easing, cautious, supporting growth." Mr Can Van Luc also believed that there is still room for fiscal policy, and the coordination should be strengthened in the money supply - inflation control, interest rate reduction, stock market development, enhancing financial capacity for credit institutions, and improving the financial framework of the financial system.

Similarly, Ms Ha Thi Kim Nga, a senior expert from the International Monetary Fund (IMF), suggests that policies need to be carefully considered and coordinated. The State Bank of Vietnam (SBV) should rely on interest rate management to curb inflation and avoid pressures on the exchange rate. She also emphasizes the need to ensure financial stability to cope with corporate bond and real estate market challenges.

In discussions with the press regarding this issue, Deputy Governor of the State Bank of Vietnam (SBV), Pham Thanh Ha, emphasized the challenges faced by the monetary tools of interest rates, exchange rates, and credit operations. He stated that it is important to handle these challenges in a way that achieves a balance among multiple objectives. Therefore, the SBV must find a point of equilibrium where monetary policies must balance stabilizing macroeconomic objectives, controlling inflation, ensuring stability in the monetary market, and working towards maintaining a stable banking system.

One of the most extensively discussed issues in monetary policy is the persistently high lending interest rates while businesses struggle with difficulties. The number of businesses withdrawing from the market has reached an average of over 17.6 thousand enterprises per month. This prolonged situation is a prevailing situation that, if prolonged, will have repercussions on the entire economy, diminishing the efficiency of supportive policies.

Therefore, a cautious loosening of monetary policy must be accompanied by efforts to expand fiscal policy with synchronous solutions such as maintaining tax exemption and reduction, promoting disbursement of public investment, etc., to make the real cash flow for the market, clear bottlenecks in the output market, and to consolidate confidence for businesses in investing and doing business.