The State Bank of Vietnam (SBV) is to lower credit growth to 20% or less, in an attempt to reduce the trade deficit
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Nguyen Van Giau, Governor of the SBV, said the bank has got the prime minister’s approval to lower its credit growth from the initial target of 23% as one of measures to stabilise the marco-economic situation as well as to control inflation.
Slower pace of credit growth would cut the total supply of money in circulation by roughly VND50,000 trillion (USD2.41 billion). In addition, the tightening of other fiscal polices of the Government, such as reducing budget expenditures, would help to save an additional VND60,000 trillion (USD2.9 billion), according to Giau.
He also noted that the total decrease of VND110 trillion in the money supply would help cut the trade deficit by between USD3 and USD4 billion in 2011. Last year\'s trade deficit exceeded USD13.2 billion. This is equal to 10% of Vietnam’s GDP.
He explained that, with the lowered money supply, companies will have to take more consideration when thinking of importing goods and materials. The aim is towards narrowing the trade gap.
The governor elaborated further on the specifics of the measures the prime minister has undertaken to control both inflation and the trade deficit. State budget revenues should be increased, while placing a cap on overspending at 5%. There will be a prioritised list of investment projects this year, while at the same time reducing regular state expenditures by 10%
Last week, the SBV raised the refinance rate, one of five key policy rates used to manage the monetary market, by 2% to 11%. The prime rate was kept unchanged at 9%.
Vietnam’s credit growth has decreased sharply in recent years, from 51% in 2007 to 37% in 2009, down to 28.7% in 2010.
