|The State Bank of Vietnam’s headquarters in Hanoi (Photo: sbv.gov.vn)
In one month the State Bank of Vietnam twice raised the operating interest rate and on October 17 widened the USD-VND exchange rate band from 3% to 5%.
Vu Tien Loc, a member of the National Assembly's Economic Committee, said the exchange rate band was widened to meet the requirements of Vietnam’s open market and full economic integration in the current context.
The US dollar has appreciated against many currencies in the world. So the Vietnamese dong would be under great pressure if the exchange rate band was kept unchanged, according to Loc.
As a result, “Widening the band allows the central bank to be more flexible in its exchange rate policy, to ensure macroeconomic stability, support exporters, and maintain the competitiveness of the national economy,” Loc explained.
The US and the EU have repeatedly ratcheted up their operating interest rates to control inflation. This has pushed the Vietnamese currency into a state of devaluation and forced the exchange rate upward.
NA deputy Pham Duc An, chairman of the Board of Directors of the Vietnam Bank of Agriculture & Rural Development, said, to boost economic growth, since the beginning of this year credit growth has expanded by more than 11%, while new capital mobilization has increased only 4%. And public investment hasn’t been disbursed.
“This has led to a shortage of capital, and as a result, commercial banks have increased capital mobilization with the interest rate of mobilized capital rising more than 3% so far this year,” said Duc An.
He added, the Government resolution requires cost reduction by cutting interest rates 1 to 2% per year. Following the SBV’s management, the lending interest rate has remained steady but the deposit rate has increased 3%. It will be a tough time in the coming months.
|Vu Tien Loc, a member of the National Assembly's Economic Committee (Photo: qdnd.vn)
Deputy Nguyen Ngoc Son, who represents Hai Duong province, said the recent changes in SBV’s monetary policy management constitutes a new condition for commercial banks trying to secure the safety of their own systems.
“As for the flexible management of the central bank, I think the question now is how to use this bank capital to ensure efficiency and compliance with the law. It will no longer be possible for incompetent businesses to get loans,” said Son.
Tran Van Lam, a member of the National Assembly’s Finance and Budget Committee, called on commercial banks and businesses to strengthen cooperation and share difficulties with each other.
Raising interest rates to limit the money supply won’t create a money boom in the market. This is a good measure to control inflation, said Lam, adding, “Our low inflation this year is partly attributed to the monetary policy measures taken by the central bank. Of course, it depends mainly on the actual factors of the economy. Those policies must be maintained effectively in the coming time.”
Legislators said Vietnam needs some radical solutions to realize the dual goal of inflation control and economic recovery.
These solutions should be implemented together with other measures, including increasing public investment disbursement and reducing the financial support set in the economic recovery and development program for 2023. Growth for 2022 is expected to be more than 8%.