IMF urges independent central bank establishment
By Tu Hoang - The Saigon Times Daily
HANOI – Vietnam needs to set up an independent central bank to deploy the monetary policy with the basic objectives to stabilize prices and curb inflation, said experts of the International Monetary Fund (IMF).
The central bank needs more specific and independent tasks, said IMF senior economist Rina Bhattacharya at a seminar discussing policy challenges of Vietnam in transition to a middle-income economy held by IMF and the State Bank of Vietnam (SBV) in Hanoi on Wednesday.
“We find that the central bank has been pursuing multiple objectives that sometimes contradict one another,” she told the seminar.
The economist cited Section 1, Article 4 of the 2010 State Bank Law saying the central bank’s functions are to stabilize the domestic currency value, ensure the security and efficiency of the banking system as well as the payment system, and contribute to the socio-economic development with socialism orientation.
She noted tackling inflation is not the sole objective of SBV, and sometimes the central bank is also obliged to help bolster economic growth. “This denotes a problem in macro-economic management in Vietnam,” said Bhattacharya.
Moreover, the economist said Vietnam’s monetary policy lacks transparency and predictability, leaving a negative impact on interest rates, growth and inflation.
In addition, although the real interest rate tool has great effect on core inflation in Vietnam, it has yet to be fully utilized to fight the inflation that is now the highest among the Asian developing countries.
IMF remarked that inflation reached its peak of 20.3% in the third quarter last year due to the loosened monetary policy. “Vietnam should aim at price stabilization and inflation curbing as the main targets,” said Bhattacharya.
SBV deputy governor Le Minh Hung did not mention the establishment of an independent central bank when delivering his speech at the seminar. He informed SBV in the coming time will operate the monetary policy based on target inflation in order to further stabilize the macro-economy and restrain inflation.
The deputy governor committed SBV will closely follow the market changes and the macro-economic situation to regulate interest rates and forex rates in a bid to improve the efficiency and effectiveness of the monetary policy.
IMF’s suggestion on independent central bank establishment is not a new idea, as the organization made the same recommendation in the late 1990s. The model has been discussed in Vietnam for several occasions.
At the Vietnam economic forum held by the The Economist magazine early this year, Deputy Prime Minister Hoang Trung Hai said the Government is considering whether to establish an independent central bank given the inflation changes.