In the context of a complex and unpredictable international environment, as a small economy with great openness like Vietnam, there are still many internal difficulties and challenges.
Monetary policy is like "walking on a tightrope"
Speaking at the Banking Forum 2023: Managing monetary policy in the face of global economic variables, Deputy Governor of the State Bank of Vietnam Pham Thanh Ha said that in the context of the world market in 2022, the first months of 2023 fluctuated rapidly and strongly with many unprecedented events in decades, beyond all previous predictions.
From a deep recession during the COVID-19 pandemic, the global economy quickly shifted to a state of record high inflation, reaching over 8% in the US and over 10% in Europe; and more than 80 countries had double-digit inflation in 2022. High inflation made the trend of tightening monetary policy inevitable. Specifically, the Fed raised interest rates at the fastest frequency and speed in history, 10 consecutive times, increasing by 5% in the past time.
In the first months of 2023, many countries continue to face the risk of economic recession with high inflation, declining global trade, and crises at some banks in the US and Europe, continuing to pose challenges to monetary policy management worldwide.
In the context of a complex and unpredictable international environment, as a small economy with a very large openness like Vietnam, with many internal difficulties and challenges, the Deputy Governor said that the management of monetary policy, especially the management of interest rates, exchange rates and credit, is facing many difficulties.
The State Bank of Vietnam must harmonize many conflicting goals such as: how to support economic recovery after the pandemic while still ensuring inflation control in the context of high global prices and inflation; how to reduce the strong devaluation pressure of the Vietnamese Dong while still maintaining stable interest rates; how to ensure the safety of the banking system while still ensuring credit demand for the economy... Regarding credit, although credit growth is very slow, easing credit will pose many risks.
 |
| Overview of the forum |
The task is extremely challenging, but with the close direction of the Government and the Prime Minister , the banking sector has been proactive, flexible, and quickly adapted to the situation in managing monetary policy and banking activities, closely coordinating with other macro policies, ministries, and sectors to join hands, contribute, and accompany the business community and people to overcome difficulties and achieve the set macro goals.
Especially in the first months of 2023, based on the positive developments of the monetary market, inflation is likely to be controlled according to the set target, to remove difficulties for the economy, support growth recovery under the direction of the Prime Minister, the State Bank has adjusted the interest rates down twice with a reduction of 0.3-1%/year in March and April 2023.
In addition, the State Bank has implemented many synchronous measures to strive to reduce lending interest rates to remove difficulties for businesses and people in accordance with the direction of the National Assembly and the Government in Resolution 43 and Resolution 11.
On the part of commercial banks, Mr. Bui Thanh Trung - Deputy General Director in charge of the Monetary and Investment Business Division of OCB said that if businesses are in difficulty, banks will also be in difficulty, and vice versa, if banks are in difficulty, businesses will be in even more difficulty. Therefore, in the past time, OCB has had many programs and policies to jointly solve difficulties for the business community such as the SME support package; supporting retail customers with short-term and long-term interest rates depending on the business conditions of the customers. At ACB, this bank has also reduced interest rates for businesses and people (including 2,900 individual customers and 7,600 businesses), including a 2%/year reduction in lending interest rates for regular customers and 3%/year for new customers.
Must find balance
In the context of an increasingly volatile economy, according to Deputy Governor Pham Thanh Ha, if banks support businesses at an acceptable level, the economy will improve. However, if banks postpone or extend debt repayments, or loosen credit conditions, the difficulties will be transferred to the banks. Therefore, it is necessary to find a balance between supporting the economy and ensuring the safety of the banking system. Therefore, the leader of the State Bank said that monetary policy management needs to aim at the overall goal of stabilizing the macro economy, controlling inflation, stabilizing exchange rates, and aiming at the long-term common goal of stabilizing the banking and financial system.
 |
| Illustration |
Sharing the difficulties of the operator, Dr. Nguyen Quoc Hung, General Secretary of the Banking Association, said that the State Bank of Vietnam is currently “walking on a tightrope”, having to both control inflation, thereby contributing to stabilizing the macro-economy, and support businesses to promote growth. “If today businesses put all their difficulties on banks, in the future when banks are in difficulty, businesses will also face difficulties,” Mr. Hung expressed his concern.
Although Circular 02/2023/TT-NHNN on restructuring debt repayment terms and maintaining debt groups is good news for both banks and businesses, Mr. Hung warned that if not careful, the economy's difficulties will be concentrated on commercial banks.
According to experts, in the context of the world economy having many uncertain variables, and the economy itself facing many difficult problems, there needs to be synchronous coordination between ministries, departments, branches, and localities, participating in building a comprehensive common solution package, to strengthen the connection between policies in general and help increase the effectiveness of monetary policy in particular.
For the economy to recover, according to Dr. Can Van Luc, chief economist of BIDV, the biggest problem this year is to drastically improve the investment and business environment. Monetary policy this year must be more multi-targeted, because in addition to the usual goals, it must also "shoulder" the goal of stabilizing the monetary system in a very unstable world context.
Appreciating the role of monetary policy in the economy, this expert also believes that in 2023, fiscal policy will still be the main policy in supporting economic recovery. This expert suggests continuing to implement the policy of deferring and reducing taxes and fees; speeding up VAT refunds; coordinating to promote public investment disbursement, and the 2022-2023 Recovery Program.
“It is necessary to coordinate fiscal and monetary policies in money supply – controlling inflation, reducing interest rates, stabilizing currency and finance, developing the stock market, increasing financial capacity for credit institutions, and perfecting the financial system institutions. In the context of instability, Vietnam needs to soon have a framework for handling crises if incidents occur,” Dr. Can Van Luc added.
According to Dr. Ha Thi Kim Nga - senior economic officer, International Monetary Fund (IMF) Resident Representative Office in Vietnam, the State Bank of Vietnam currently needs to balance the difficulty of controlling inflation, avoiding a sharp slowdown in growth, and also dealing with instability in the real estate market... However, Ms. Nga noted that inflation and exchange rate pressure may return when the global financial market worsens. Therefore, caution is needed in implementing upcoming policies.
Dr. Vo Tri Thanh - Member of the National Monetary and Financial Policy Advisory Council: Monetary policy does not allow for trial and error. It can be seen that Vietnam's monetary policy management aims at many goals, or in other words, multiple goals, including ensuring macroeconomic stability, system safety, economic recovery, social security and national security and defense. However, monetary policy does not allow for trial and error; just one mistake can lead to a mile-long error. The sensitivity between money supply and core inflation is higher than that between money supply and inflation, food and energy prices. Therefore, many countries have a cautious, even conservative approach to monetary policy. In recent times, the State Bank has operated monetary policy flexibly and cautiously, achieving positive results in supporting businesses and the economy while maintaining system stability. In the coming period, although the pressure is decreasing, it should be noted that core inflation remains high and can return quickly if the financial market fluctuates. This requires the State Bank to closely monitor and forecast in order to have the most appropriate response policy. I think that Vietnam needs to soon have its own scenario so that things do not get worse, in addition to promoting domestic consumption, public investment, creating jobs, and injecting capital into the economy. The economy is facing many difficult problems in many areas such as slow disbursement of public investment, legal problems and the weakening of the real estate market, pressure to adjust the corporate bond market, etc. Therefore, there needs to be synchronous coordination between ministries, departments, branches and localities, participating in building a comprehensive common solution package, to strengthen the connection between policies in general and help increase the effectiveness of monetary policy in particular. The current context requires healthy and sustainable development, capital markets, including bond and stock markets, to reduce capital pressure on banks. In addition, increasing the effectiveness of implementing support packages to restore business production. Ms. Duong Thanh Binh - Deputy Director of Monetary Policy Department, State Bank of Vietnam: Flexible and cautious to have suitable solutions The SBV's credit management policy is towards safe and effective growth; coupled with improving credit quality, directing credit flows to a number of priority production and business sectors, and growth-driving sectors under the direction of the Government. The SBV's monetary policy management focuses on achieving the target of controlling inflation while supporting economic growth at an appropriate level. Therefore, in recent times, the SBV has been proactive and flexible in managing credit growth to both meet the capital needs of the economy and create more favorable conditions for businesses and people to access bank capital. Regarding the story of improving the effectiveness of monetary policy management, the State Bank always flexibly manages monetary policy tools as well as innovates monetary policy tools to ensure improved efficiency while implementing solutions suitable to the economy, domestic and international economic and monetary conditions while approaching modern international management. However, improving the effectiveness of monetary policy management depends not only on the State Bank but also on restructuring the economy, improving business capacity, and developing the financial market to ensure safer and more effective bank credit. Once the economy's capital demand depends heavily on bank credit, interest rate pressure remains high. Although it is very much desired to reduce interest rates, in the context of high economic risks and unpredictable fluctuations, it causes difficulties in the State Bank's management. In the coming time, the State Bank will continue to closely monitor domestic and international economic and monetary developments to have appropriate solutions and promptly adapt to fluctuations in the international market. One of the factors that needs attention is that although the Fed and central banks of other countries have temporarily stopped raising interest rates, interest rates remain high. On the other hand, the potential risk of inflation both domestically and internationally is still very high. Therefore, in operating monetary policy, the State Bank will continue to be flexible and cautious to have appropriate solutions to both achieve the target of controlling inflation and supporting businesses and people in the process of economic recovery. Dr. Nguyen Quoc Hung - General Secretary of Vietnam Banks Association: The banking industry has been making great efforts. I think that recently, the State Bank has been proactively operating policies in line with the domestic economic context. As we know, the global economy is very complicated, especially in the US, the Fed has continuously changed its interest rate policy. However, in the first months of 2023, based on the actual situation in the country, it has operated monetary policy and flexible interest rates, creating conditions for banks to reduce deposit interest rates as well as lending interest rates to support businesses. It must be affirmed that to achieve the current results, it is the effort of the banking system from the State Bank as well as commercial banks. In the past, the management of the State Bank has been very suitable to the current economic situation. The Vietnam Banking Association also called on commercial banks to reduce costs and interest rates to support businesses. However, banks are also businesses and cannot support like that forever, they must be responsible to shareholders and investors. In the coming time, I hope that the State Bank will continue to operate a stable and cautious monetary policy, but also need to be more flexible. Especially in the allocation of credit growth, it should be implemented right from the beginning of the year. In addition, I request the Government, ministries, branches and localities to quickly disburse nearly 1 million billion VND of public investment. If there are any problems, the mechanism must be improved so that ministries, branches and localities can implement them well. In addition, fiscal policy must be more active in supporting the economy by reducing taxes to the maximum for businesses to recover production and business. With the drastic management of the Prime Minister, the State Bank has many policies to support people and businesses, I believe the economy will flourish. |
Source link
Comment (0)