Foreign experts assumed the consumer price index’s (CPI) fall was too fast for Vietnam’s economy. Is that the case?
June’s CPI contracted, but it is too early to conclude whether it signals deflation or disinflation.
In fact, the June CPI just slightly contracted whereas the second quarter’s gross domestic product (GDP) expanded 4.51 per cent, averaging 4.13 per cent each quarter, showing that the GDP was reviving.
Besides, the processing industry, which occupies 75 per cent of total industrial production value, hiked 9 per cent in June in the face of sliding industrial production. This means consumption is revving up, but it needs more time to get a clearer picture.
In my view, the CPI would hover around 5-6 per cent by the year-end if the state took no action. The CPI would be kept at 8 per cent by the year end if we resorted to policies.
Foreign experts supposed the CPI growing at 8 per cent per year by the year end would be the best-case scenario for Vietnam’s economy in current context as it will give room for us to handle fiscal and monetary policies.
Should Vietnam further loosen monetary policies until the year’s end?
It is now more important what must we do to boost capital absorption of the economy whereas further loosening monetary policies or lowering interest rates may not work.
The banking sector credit did not expand in the first six months against the set target of 15-17 per cent for this year. Hence, credit growing at around 10 per cent this year would be fine. With such growth, around VND50,000 billion ($2.38 billion) will be pumped into the economy each month and it is not simple to absorb such colossal capital amount in a short time.
How to unblock credit sources?
Tackling banks’ bad debts is of great importance. The economy’s ill capital absorption came from banks’ bad debt problem. This clotted blood must be shortly removed to unblock credit flows.
In the past six months, monetary policies management focused on rescuing banks as well as tackling weak bank illiquidity. Their negative side was spiraling bad debts at banks.
Addressing bad debts needs time. What should be done in the near term?
To better the situation banks running at a profit should provision 70 per cent of their bad debts’ regulated provision amount. In doing that, bank profits will abate but their bad debts will also sink.
At this time, banks are unlikely to collapse, but banks have scaled up mobilisation to avoid losing market shares. Banks then need to boost lending. It is important for banks and firms to find a common voice.