The Vietnamese government is taking a cautious monetary policy approach as warnings about accelerating credit growth and the return of high inflation circulate.
Prime Minister Nguyen Tan Dung, in the government’s monthly meeting in late May, stipulated that the State Bank (SBV) needed to closely monitor market movements weekly, especially the movement of the M2 money supply, which was a measure of the total money supply, including currency in circulation, confirmed deposits, savings and other time deposits.
Dung asked the SBV to take all necessary measures to ensure the safety of the country’s banking system. The government has earlier announced that a stimulus package worth around $8 billion would be used to spur economic growth and create jobs. The package includes 4 per cent interest rate subsidies and large investment capital from the state budget and government bonds.
Some economists warned that the stimulus package might cause a boom in credit growth and the M2 money supply, which could in turn result in high inflation.
General Statistics Office figures show that the consumer price index (CPI) rose 0.35 per cent in April after falling 0.17 per cent in March. In May, the CPI continued increasing 0.44 per cent against April, or 2.12 per cent in comparison with last December.
Although the CPI increase over the past five months was still relatively low, Nguyen Thi Hong, deputy director of the State Bank’s Monetary Policy Department, said the rise during two straight months could indicate a return of high inflation given that credit growth was accelerating in line with the increase of global crude oil and domestic electricity prices.
According to a Ministry of Finance report, credit growth had climbed over 14.91 per cent since last December. Meanwhile, the M2 money supply growth was estimated at 14.55 per cent and cash outside the banking system at 19.3 per cent. Benedict Bingham, senior resident representative of the International Monetary Fund in Vietnam , said the challenges posed by high inflation in the country were real.
He said the Vietnamese government was right to implement the existing monetary and fiscal policies to spur economic growth amid the global financial crisis. However, he said that the economy had experienced its most difficult period in the first quarter of this year. Bingham said it was time to change some measures in monetary policy in order to ensure stable economic growth and avoid high inflation.
SBV deputy governor Nguyen Dong Tien said the central bank had not on decided any basic monetary changes and would monitor money market movements closely.
“Credit growth and the M2 money supply are under our control, but we will implement any measure required to stabilise the economy if necessary,” said Tien.
He said the SBV could control credit growth at about 25 per cent for the whole year, and the government aimed to keep the inflation rate at around 7 per cent this year, much lower than the 15 per cent level previously permitted by the National Assembly.
Bingham said the government should calculate the current amount of total currency in circulation as well as remaining money demand for the whole year to help avoid an abundance of currency in circulation.
VIR
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