VietNamNet Bridge – Tran Hoang Ngan of HCM City Economics University, a member of the National Advisory Council for Financial and Monetary Policy, spoke toTien Phong (Vanguard) newspaper.


How will the world economy impact on the national economy this year? What should the country focus on when it comes to monetary policy management?

Generally speaking, the Government needs to adopt different strategies to cope with the extraordinary financial situation. For example, with US financial support packages as 2007 highs, how do we cope with such a large inflow of US dollars into Viet Nam? Or what should we do if the oil price reaches US$120 per barrel? What to do if world food and rice export prices increase?
Regarding monetary policy, I personally think there is little room for manoeuvre when it comes to monetary policy management. The lending interest rate has reached its peak and there is no alternative but to follow market forces. In the short term, the State Bank of Viet Nam must stop interest rates from rising. It must immediately cut interest rates when inflation is under control, hopefully this quarter.

It has been forecast that the price of key commodities such as oil and gas, coal and electricity will rise at the end of the first quarter and at the start of second quarter. Won't that drive up inflation?


It is important that the price of these commodities remains stable. A price adjustment will be made in the lunar new year. That will surely lead to a rise in inflation. However, this was taken into account when a 7 per cent inflationary target was set this year. Psychological factors have a strong influence on price rises. Hence, it is better to allow the price of essential commodities to rise in a controlled manner to avoid shocks to the system.

The State Bank of Viet Nam has set a credit growth target of 23 per cent this year. Will that ensure enterprises have enough capital?


In my opinion, a targeted credit growth of 23 per cent is reasonable. However, we need to think about tightening our belts, cutting unnecessary projects and delaying excessive investment and boosting efficiency of capital use. It is important to ensure there is enough capital for production.

The Government has set an inflation ceiling of 7 per cent. Therefore, interest rates must not exceed 10 per cent to 12 per cent per year.

The National Advisory Council for Finance and Monetary Policies has forecast that interest rates for deposits and lending interest rates would be 14 per cent and 17 per cent per year respectively in the first quarter of this year. These rates should drop to 12 per cent and 14.5 per cent in the second and third quarters.

Has the council made any proposals to the Government and the State Bank of Viet Nam to manage the foreign exchange market?


I have asked the Government to adjust the foreign exchange rate in accordance with market forces. The Prime Minister has also called for a flexible rate. If the exchange rate is 20,500 dong per dollar, the central bank should adjust the dong lending interest rate accordingly. Only by so doing, will the public be discouraged from withdrawing dong to buy dollars. It is also necessary to have a low ceiling rate on foreign-currency deposits. If the US dollar rate does not fluctuate this year the value of the dong should increase. This month is an ideal time to adjust the dong/US dollar exchange rate to boost short-term capital flows into the country. The US dollar price on the free market is also expected to decrease, while foreign remittances are expected to rise to US$8 billion.


VietNamNet/Viet Nam News