Vietnam successful in implementing tight monetary policy

The Vietnamese government has made strides in putting its tight monetary policy in place, helping reduce credit demands and inflation, according to HSBC Group.

The Vietnamese government has made strides in putting its tight monetary policy in place, helping reduce credit demands and inflation, according to HSBC Group.
According to the Group’s May 2012 report, the Vietnamese government has taken great pains to curb inflation by adopting the tight monetary measures. Credit growth fell from 27.7 percent in 2010 just to 10.9 percent in 2011. The State Bank of Vietnam (SBV) reversed the process of tightening monetary policies in late 2011 and lowered interest rates in early 2012 and plans to further cut the rates in the following quarters.

The reduction in aggregate demand has brought inflation down, expected to reach a single digit in May, and made the demand for imports decline remarkably, leading to the stability of the national currency (VND).

HSBC predicted that the Vietnamese economy will probably grow at 5.1 percent this year, while inflation is likely to be slashed to 9.8 percent.

The group said that Vietnam’s export growth will slow down. However, the most worrying problem is that imports have declined remarkably, and most import items are used for production rather than consumption.

Due to the decrease in imports, the trade deficit will be reduced from US$9.8 billion to US$4.6 billion this year. There are good signs for the national currency that the real interest rate on open market operations (OMO) is positive, for the first time over the past two years.