PM adopts anti-inflationary measures

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VietStock FI English - 84 month(s) ago 8 readings

Prime Minister Nguyen Tan Dung has approved a variety of tighter fiscal and financial measures in a bid to bring inflation under control and narrow the widening trade deficit.

"The measures will help pull more money out of circulation," said Vo Tri Thanh, Deputy Head of the Central Institute for Economic Management. However, more needs to be done to control the growing threat of inflation, he added.

Following the recent currency devaluation, the Government added to those pressures by announcing upcoming increases in electricity rates and fuel prices.

On February 21, HCM City estimated inflation this month had reached 1.61 percent over January, or 9.22 percent over the same period last year. The national inflation rate reached an annualised 12.17 percent in January, the fastest rise in 23 months.

Among measures adopted by the Government on February 21, PM Dung vowed to cut State budget expenditure by 10 percent by restructuring capital projects and delaying non-essential or ineffective work.

He also approved the State Bank of Vietnam (SBV) proposal to lower the target for credit growth in the commercial banking system from 23 percent to between 18 and 19 percent. Credit growth last year reached 27.65 percent, pushing outstanding loans to 140 percent of the gross domestic product (GDP).

SBV Governor Nguyen Van Giau said that the slower pace of credit growth and tighter fiscal policies would cut the total supply of money in circulation by approximately VND110 trillion (US$5 billion) and help reduce the trade deficit by US$3-4 billion. Last year's trade deficit exceeded US$13.2 billion, equal to 10 percent of the GDP.

An executive of the partly-equitised Vietcombank, who asked that his name be withheld, warned that policies aimed at cooling economic growth, while counter-inflationary, could have the additional downside of increasing unemployment and poverty.

The five-year Party Congress has targeted annual economic growth at 7-7.5 percent.

"The Government sees economic stability as the most important thing at this time, so, as a banker, I think a tighter monetary policy and 18-19 percent credit growth is acceptable," said the Vietcombank executive. "The message of tighter monetary policy will initially stabilise public sentiment, and then interest rates will go down."

"It's still too early to forecast how banks will response to the new target or how interest rates will go," Asia Commercial Bank Deputy Director Nguyen Thanh Toai told Vietnam News. "We need to know specifics, and we need more time to calculate the capital demands of the market."

In an attempt to deliver a clear message of tighter monetary policy, the central bank last week raised the refinance rate – one of five key policy rates used to manage the monetary market – by 2 percentage points to 11 percent, although the prime rate was kept unchanged at 9 percent.

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