VietNamNet Bridge – There has been no sign of showing that the State Bank is considering loosening the monetary policies now, five months after applying the tightened monetary policies.
The State Bank's head office
The State Bank has sent a message to the public that it will not raise the required compulsory reserves ratio, not issue bonds, continue to tighten the credit growth, keep the deposit ceiling interest rate at 14 percent and not to set a cap for lending interest rates. All these things show that the central bank does not intend to loosen the monetary policies right now.
Protecting liquidity like “maintaining dykes”
According to the State Bank’s Governor, Nguyen Van Giau, the central bank has been helping commercial banks keep the liquidity stable by refinancing the banks and purchasing foreign currencies from the banks.
On May 5, 6, 9, 10, 12 and 13, when the interbank interest rates were pushed up, the State Bank had to “pump” money into circulation through different channels, including the foreign currency purchases. The bank purchased up to 200 million dollars some days.
In order to reserve money to give support to the right banks, the State Bank has been maintaining the open market operation (OMO) in a special way. The central bank believes that the banks, which own many valuable papers, always have good corporate governance and firm liquidity. Therefore, it does not let the money to flow to the banks which can be described as “carrying coals to Newcastle”.
At the same time, the State Bank has been trying to drive the cash flow in the society to the banking system like attracting fish to the fish net. However, in order to attract capital the bank does not offer high interest rates, but it has been applying other measures.
First of all, the bank set a cap on the deposit interest rates at 14 percent per annum, while it does not set any ceiling to the lending interest rates. After that, it orders banks to clock the “credit valve” to non-production sectors. By December 31, 2011, the outstanding loans to non-production sectors (real estate, securities…) must be reduced to 16 percent of total outstanding loans from the current level of 20 percent.
Though the deposit interest rates are low which cannot bring real positive interests in the context of high inflation, people have no other choice of depositing money at banks. They cannot inject money in other markets, such as gold or real estate markets, because the markets have become lackluster after the bank blocks the credit flow to the places.
The latest report by the State Bank released on May 25 shows that the deposits from the public have increased by 11.84 percent.
As such, observers have commented that the State Bank has scored three goals: stabilizing the gold market, stabilizing the foreign currency market and protecting liquidity.
However, ignoring the advices by the experts on setting up a ceiling on lending interest rates in order to keep the interest rates affordable to businesses, the State Bank still keeps the interest rate policy unchanged. Only the cap of 14 percent has been set on deposit interest rates, while no ceiling lending interest rate has been imposed. The State Bank also does not loosen the monetary policies under any forms, except pumping money to the banks which need support to improve liquidity.
High inflation is the key
A question has been raised of why the State Bank has been so persistent to its policies, ignoring the advices from many experts? And the answer has been found: the high inflation does not allow the bank to loosen monetary policies.
According to the General Statistics Office (GSO), the consumer price index in May 2011 increased by 2.21 percent over April 2011, by 12.07 percent over December 31, 2010 and by 19.78 percent over the same period of the last year
Meanwhile, according to the State Bank, by the end of 2010, the total outstanding loans to the national economy had reached the level which was 1.2 times higher than the 2010’s GDP (104 billion dollars, or 1.5 millions of billion dong).
As such, when the CPI and the credit are still high, it would be an action of “pouring more oil into fire” if the State Bank loosens the monetary policies.