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Vietnam may succeed in taming inflation if it stands firm on its policies to tighten the money supply, says one economist.
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| Trade deficit impacts foreign currency reserve, but not inflation |
Dr Le Xuan Nghia, Vice Chairman of the National Financial Supervisory Commission (NFSC) said, “April could be the last month to see high-rising consumer price index (CPI) if the State Bank of Vietnam (SBV), the country’s central bank, is determined to maintain its policies on the supply of money. Monetary policies could start to have an effect on the market beginning in May.”
Nghia explained that, in the past the Government has found it difficult to maintain strict monetary policies for a fear that high interest rates would harm businesses. It often loosens such policies after a short term of enforcement, which resulted in the failure to control inflation.
Such a scenario could be seen in 2010 when the Government did not stand firm on its tightening of monetary policy. This led to high inflation, particularly in the fourth quarter, and even spilled over into the first quarter of 2011, according to Nghia.
He also turned down a supposition that trade deficit could drive up inflation. He said, “Trade deficits just result in the country having a lower foreign currency reserve. They do not have a direct impact on inflation.”
In recent few days, the press has reported that foreign exchange rate between USD and VND in the unofficial market is lower than that applied by commercial banks. Previously, the unofficial rate was higher than the official one.
Nghia attributes this to the effect of SBV’s tighter monetary policies.
“Currently, Vietnam is “torn” between policies with conflicting aims. These include economic growth, low inflation rate, more jobs, increased exports and decreased imports. However, it’s not easy to realise all these targets at once, policies may have effects that counter one another,” said Nghia.
He added that investment may help economic growth, but if it is not done efficiently, it could lead to unsustainable development.