return icon

State Bank’ rate hike necessary to defend VND, control inflation: ADB Country Director

ADB Country Director Andrew Jeffries has talked on the recent interest rate hike by the State Bank of Vietnam in the context of the Fed, ECB and a number of countries raising their rates to curb inflation.
State Bank’ rate hike necessary to defend VN dong, control inflation: ADB Country Director hinh anh 1
ADB Country Director Andrew Jeffries (Photo: VNA)

“Another significant achievement in economic policy in Vietnam has been maintaining macro-economic stability,” Jeffries said.

According to him, through the pandemic and also through the economic shocks of this year, including global inflation, fallout from the conflict in Ukraine and recession risks, Vietnam was successful in controlling inflation this year, despite enormous pressure from energy, commodity price surges from world economy.

He went on to say that monetary policy measures taken by the government have greatly contributed to this success, keeping money supply and credit under control, dealing with pressure for a stable exchange rate while supporting business access to financial resources for recovery.

“This is a very delicate balancing act and the State Bank of Vietnam should be given good credit for this,” the ADB official said.

As for the risk of capital outflows following rate hikes by central banks in the world, Jeffries was of the view that Vietnam is relatively less affected than many other countries in Asia.

He explained that first of all, Vietnam does not have significant government debt in the international bond markets and has relatively low public debt level, at 43% of GDP. Capital control restricts overseas portfolio investment or hot money for rapid inflows and outflows from Vietnam stock market.

According to him, the US Fed’s aggressive monetary tightening will trigger short term capital outflows, however foreign direct investment or FDI remains healthy in Vietnam due to the country’s solid medium term economic fundamentals.

He stressed that it’s very important to consider that FDI is long term, it doesn’t come and go and flee based on economic shocks. And Vietnam has strong economic fundamentals and will remain an attractive FDI destination.
Jeffries said the one percentage point increase in rate on September 22 in Vietnam is an example of decisive measures that are necessary in this environment where the Fed, ECB and a number of countries have very recently raised rates, with Vietnam following suit to keep the dong stable and it was difficult but the right thing to do.

A stable Vietnamese dong is critical for Vietnam to support trade and also contain inflation, he said, noting that depreciation of the dong would make imported goods more expensive and would worsen the account balance and eventually the balance of payment.

Vietnam also imports a lot of intermediate goods and does final re-assembly for re-export and so a stable dong is important to maintain relatively lower prices for these important imports that are critical input for Vietnam for the export, according to Jeffries.

He noted that the high inflation in major economies and the tightening monetary policy around the world is weakening global demand. Vietnam is an open economy, means that this trend could wear on Vietnam’s export.

Another issue is possible labour shortages, which could impede the recovery of services in labour intensive export sector.

“So recommendations include Vietnam should continue to maintain a flexible monetary policy, and closely monitor the global economic situation. The aggressive rate hike that the State Bank of Vietnam just implemented is a decisive action in a reaction to the extremely volatile global situation, meant to defend the dong and keep inflation in check,” the ADB Country Director said.

He added that targeted fiscal support for the most vulnerable group may be needed if inflation does raise. Before this rate increase, the State Bank of Vietnam was using credit room limit to address the problem which is imposing a ceiling on credit quantity to financial institutions.

This worked but as shown just in the last few days, it’s time to move on to more market-based instruments such as increasing rates to promote a healthy financial sector development for longer terms, according to Jeffries.

He said regarding the fiscal side, Vietnam’s economic recovery development programme has a lot of interesting and innovative features to help companies and businesses recover from the pandemic and the current shocks. Implementation needs to be sped up and again target those in need rather be too broad to avoid a limit and abuses of the problem.

In his view, in a longer term, the priority should focus on improving the overall business environment which has come a long way but that’s an on-going gradual and continuous process that needs to keep going.

He recommended such measures as removing hurdle for businesses and simplifying administrative procedures to lower transaction cost.

The ADB Country Director said the good news is Vietnam growth this year is very strong, with the ADB projecting 6.5% while other projected even higher, and so despite the risk going on globally, the strong fundamentals of Vietnam make Vietnam relatively resilient in a more challenging global environment./. 
Source:  VNA


Foreign trade may hit record of 780 billion USD in 2022

Surmounting difficulties to boost economic recovery, Vietnam is expected to post a foreign trade record of 780 billion USD in 2022.

Golden days are over for leading seafood firms

Seafood companies no longer see bright prospects as the global situation has worsened compared with the previous period. Domestically, the situation is also problematic with interest rates rising sharply.

Traffic congestion is biggest obstacle to southeast’s development

Traffic congestion is the biggest challenge for the economic development of the nation’s southeast region, given that only 50 kilometers of expressway has been built among the six key provinces in the past 10 years, according to the prime minister.

Lonely Planet reveals eight attractive treks in Vietnam

Tribal treks around Bac Ha and Cultural treks from Sa Pa have been named among the eight best treks for travelers to enjoy when visiting the nation, according to the Australian version of renowned travel guide Lonely Planet.

Vietnam posts US$10.6 billion trade surplus in Jan-Nov

The country’s exports amounted to US$342.2 billion while its import spending totaled US$331.6 billion between January and November, generating a trade surplus of US$10.6 billion, according to the General Statistics Office of Vietnam.

What are Vietnam’s opportunities in the face of new reforms in China?

Vietnam-China relations in the past were based mostly on trade and construction bids. What will be important for the new period?

US spends over US$13 billion purchasing local computers and electronics

Vietnamese electronic computers and component exports to the United States during the initial 10 month of the year surged by 26.4% to reach US$13.23 billion against the same period from last year.

Experts discuss need for capital disbursement, loans to enterprises

More public investment funds should be disbursed and credit limits lifted to provide capital and improve capital flow, experts have said.

Vietnam welcomes 2.95 million foreign tourists over 11-month period

The country welcomed 2.95 million foreign visitors during the initial 11 months of the year, a figure 21.1 times higher compared to the same period from last year, but still down 81.9% compared with pre-pandemic levels in 2019.

Ministry to tighten control of joint training programs with foreign partners

About 25,000 students are studying in about 300 joint programs with foreign schools in Vietnam.

IPP Air Cargo approval procedure suspended at investor's request

The Transport Ministry has informed to the Prime Minister of a suspension of the approval procedure for the IPP Air Cargo JSC at the request of the carrier’s investor.

Borussia Dortmund touches down in Vietnam

Renowned midfielder Marco Reus and a delegation made up of 123 players and staff from leading German side Borussia Dortmund landed at Noi Bai International Airport on November 29.

National Assembly Chairman begins official visit to Australia

National Assembly Chairman Vuong Dinh Hue and the Vietnamese NA's delegation arrived in Canberra on November 29 evening (local time), starting an official visit to Australia from November 30 - December 3.


International Circus Festival to open in December


EVN's losses estimated at VND31.3 trillion in 2022