Stable credit demand

According to data from a recent regular government meeting, the monetary and credit markets were relatively stable in the first two months of this year, and the credit growth in the first two months of 2022 was 0.66 percent higher than the same period last year and back to pre-pandemic levels. Mobilized capital continued to grow but at a slower rate than credit growth. Specifically, as of February 25, mobilized capital increased 1.29 percent, with Vietnamese dong-based capital and foreign currency capital up 1.3 and 1.24 percent compared to the end of 2021, respectively.

Monetary policy needs to be managed appropriately

Despite pressure from loosened monetary policies and increased interest rates in the global market, the State Bank of Vietnam (SBV) plans to maintain current interest rates so that credit institutions can provide low-cost loans to help production and trading recovery. The SBV will continue directing credit institutions to balance their financial capacity and apply reasonable lending interest rates, minimize operational costs, and avoid paying cash dividends in 2022.

The central bank has instructed credit institutions to prioritize capital for production, trading and other priority fields, create favorable conditions for customers to access credit, and strictly control credit in risky areas such as real estate, securities, BOT (build, operate, transfer) and BT (build, transfer) projects, and corporate bonds.

Inflation control

The Russia-Ukraine war has raised concerns about potential price increases and high inflation making monetary predictions harder, but economists believe most countries will adopt more cautious policies for now. Global interest rate increases are expected to have a significant impact on Vietnam's inflation, putting heavy pressure on the country’s monetary policy management.

Rising fuel prices have a significant impact on the economy

Early this year, the SBV forecast credit would increase 14 percent. The bank is urgently preparing guiding documents to realize an interest-rate-subsidy package worth VND40 trillion, which is equivalent to VND2 quadrillion of capital to be poured into the economy in 2022-2023. This is expected to increase inflationary pressure, but Vietnam still has sufficient leeway to control inflation.

Economist Can Van Luc said it is most important to prepare sufficient goods supply, control fake scarcity of commodities and inflation, and immediately realize economic recovery packages. Vietnam’s foreign reserves are at a record level, while foreign direct investment (FDI) in the country is still increasing strongly, providing the SBV with a basis for stable, flexible monetary policy, Luc said.

Economist Nguyen Bich Lam, former Director of the Ministry of Planning and Investment’s General Statistics Office of Vietnam (GSO) said implementation of the economic recovery and development package is vital and the package-related inflationary pressure is not ominous. The two-percent value added tax (VAT) reduction, for example, does not pour money into the economy but reduces taxes and budget revenue, Lam said.

The government, ministries and sectors have considered the economic recovery and development package carefully and have a plan to realize it systematically in order to avoid inflationary pressure, Lam said. Inflationary pressure can only occur when the demand for raw materials increases, which will lead to price increase, he added.

This potential price increase, if any, will be caused by material suppliers but not due to pressure from money pouring into the economy, according to Lam, making it important to ensure sufficient goods/material supply and prevent supply chain disruptions, Lam said.

Ngan Thuong