Monetary policy needs to support growth

On May 10, the State Bank of Vietnam (SBV) organized the Banking Panorama Forum 2023 with the theme "Monetary policy management in the face of global economic variables".

Monetary easing will have risks

According to the affirmation of Deputy Governor of the State Bank of Vietnam Pham Thanh Ha, the international market has fluctuated very strongly, from the currency and foreign exchange markets with the US dollar fluctuating the most in the past 20 years, the capital, stock and bond markets showing a global shift in a trend that is detrimental to many countries.

In that context, as a small economy with great openness like Vietnam, with many internal difficulties and challenges, monetary policy management, especially tools for managing interest rates, exchange rates, and credit, faces many difficulties and challenges in harmoniously handling many conflicting goals.

Specifically: How to support economic recovery after the pandemic while still ensuring inflation control; Reduce the strong devaluation pressure of the Vietnamese Dong in the context of a strong appreciation of the US dollar while still maintaining stable interest rates.

According to the Deputy Governor of the State Bank of Vietnam, with credit, the banking industry must ensure the safety of the banking system while still ensuring credit demand for the economy. In the first months of the year, credit growth was very slow, but if credit is loosened, there will be potential risks.

The economic difficulties are a whole and can be divided into the difficulties of enterprises and the difficulties of banks. If banks support enterprises at an acceptable level, the economy will improve. If banks postpone, extend debt, and loosen credit conditions, the difficulties will be transferred to the banks.

“The desire of businesses to reduce interest rates is legitimate, and no one in the banking industry wants high lending and deposit interest rates, but we also have to consider macroeconomic stability, exchange rates, etc., in short, the stability of the banking system,” said Mr. Pham Thanh Ha.

On the business side, Mr. Truong Van Cam - Vice President and General Secretary of the Vietnam Textile and Apparel Association (VITAS) highly appreciated typical monetary management policies such as interest rate reduction or debt restructuring.

Mr. Truong Van Cam wants to restructure debt between economic sectors, because the capital demand of enterprises is very large, from 500,000 to 600,000 billion VND to transform the textile and garment industry towards green growth.

The business community is currently facing many difficulties, many businesses have had to sell assets to survive. The ability of businesses to absorb capital is very low, slow credit growth shows that the economy continues to face difficulties. In particular, the burden of providing capital for the economy is still on the shoulders of the banking system because the capital market still has many shortcomings. While Vietnam's credit/GDP ratio is currently at a very high level and according to recommendations from international organizations, if credit growth continues to be maintained at a high level as in previous years, it will be very risky for the banking system and the entire economy, especially when the capital sources of banks are mainly short-term, but they still have to "shoulder" the task of providing medium and long-term capital for the economy.

Need to build own scenario

For the economy to recover, according to economic expert Dr. Can Van Luc, 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.

“However, the State Bank of Vietnam is shifting its monetary policy from cautious and tight to cautious easing, supporting growth. Specifically, the State Bank of Vietnam is operating interest rates in a downward trend, increasing businesses’ access to capital, issuing debt restructuring policies, supporting systemic liquidity, and promoting the restructuring of credit institutions…”

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 launch a number of support packages for people (tax deferral, fee reduction), while promoting public investment to reduce cash flow congestion, increase liquidity for the system...

Meanwhile, economic expert Dr. Vo Tri Thanh said 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. In addition, increasing the effectiveness of implementing support packages to restore business production./.

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