Monetary policy in 2024: Will arrive successfully.

With less than three months remaining in 2024, a year fraught with global political and economic turmoil, Vietnam can confidently predict, based on current achievements, that it will still meet its growth targets this year. A significant contribution to this success will undoubtedly come from the role of monetary policy.

The dilemma of monetary policy

Following the Covid-19 pandemic, there is hope for a turnaround from 2023 with GDP growth reaching 5.05%, although not meeting the target, and one of the highlights of this success is that monetary policy in 2023 brought interest rates to a level favorable to businesses.

This is an effort and endeavor not only of the banks, because achieving the concise statement "low interest rates" comes with significant challenges in monetary policy management. To offer low lending rates, deposit rates must also be low, but if deposit rates are low, money will not flow into banks but into other, more profitable channels.

Resolving this conflict is by no means simple, especially as we enter 2024 amidst a volatile and unpredictable global economic and political landscape. The US Federal Reserve (FED) has maintained high interest rates, only lowering them slightly (0.5 percentage points) on September 18th. This demonstrates that, in the context of global monetary tightening, the State Bank of Vietnam's ability to maintain reasonable interest rates to stimulate credit is a highly commendable achievement in many respects.

Deputy Governor of the State Bank of Vietnam, Pham Thanh Ha, expressed confidence in the monetary policy's ability to control inflation and support economic growth this year.

The reason for discussing multiple aspects is that, in addition to the international situation where the FED is determined to keep interest rates high for an extended period, some export markets are experiencing declining demand, and export costs are rising due to transportation difficulties caused by wars in some areas, domestic issues are also very difficult to address. As everyone knows, for credit to grow, institutional bottlenecks in the economy need to be removed. If these are not removed quickly and promptly, even if businesses can borrow capital from banks, they will find it difficult to use it effectively.

In fact, these bottlenecks have been discussed in many forums and by influential people. These are shortcomings stemming from the Law on Public Investment, the Law on Bidding, the Law on Management and Investment of State Capital in Enterprises, the Law on the State Budget, etc. These bureaucratic obstacles hinder businesses from accessing credit, so not everyone is enthusiastic about borrowing. After all, what's the point of borrowing when the business isn't progressing?

This situation not only traps banks, but also puts the State Bank of Vietnam (SBV) in a difficult position because further interest rate cuts may not necessarily boost credit growth, while it also faces risks from exchange rate pressure.

A brighter future

However, according to the latest results, the situation is now favorable for macroeconomic management. Last week, the Governor of the State Bank of Vietnam, Nguyen Thi Hong, stated that although the USD index has increased compared to the beginning of the year, the pressure has eased, thereby facilitating export growth. According to Ms. Hong, due to banks actively boosting lending, by September 30, 2024, credit had increased by 9% compared to the end of 2023, and by 16% compared to the same period last year. Therefore, the target of 15% growth this year is very achievable in the remaining months.

There are many reasons for these achievements, but among them, monetary policy stands out as one of the most prominent. The average lending interest rate continued to decrease by about 0.5%, and the Vietnamese Dong depreciated by about 1.66%, a rate considered reasonable by many experts for stabilizing the monetary market.

The reason for providing detailed information on the percentage depreciation of the Vietnamese Dong is that, recently, the exchange rate situation has been quite tense. Without the State Bank of Vietnam's skillful and coordinated handling of tools such as interbank interest rates and open market operations (OMO), maintaining a reasonable exchange rate would have been very difficult, especially given the continuous pressure from the interest rate differential between the Vietnamese Dong and the US Dollar.

Ultimately, the persistent yet flexible approach to management has yielded positive results. Overall, the macroeconomic indicators are now very bright, and the expectation of a 15% credit growth target for the whole of 2024 is now considered achievable. Currently, some banks have increased deposit interest rates, and as Deputy Governor of the State Bank of Vietnam, Pham Thanh Ha, said, this is welcome news because the banks have been able to spend the money!

Perhaps, for policymakers, nothing provides more reassurance than the smooth flow of money. When banks can spend money, it means businesses can borrow capital effectively, and effective businesses will pay taxes regularly, and workers will have stable jobs… all these factors are interconnected to provide momentum for overall economic growth.

The primary goal of the State Bank of Vietnam's monetary policy is macroeconomic stability and inflation control. Of course, it's still too early to declare success for the entire year of 2024, but even so, based on the quantifiable results, it's not an exaggeration to say that this year will see many noteworthy achievements from the State Bank's efforts.

Source: https://thoidai.com.vn/chinh-sach-tien-te-nam-2024-se-cap-ben-thanh-cong-206060.html