Call for central bank to increase monetary tightening policy

The State Bank of Vietnam will continue issuing bills of exchange in order to reduce money in circulation as part of moves to maintain a monetary tightening policy to rein in high inflation, said the SBV’s vice governor Nguyen Dong Tien.

Such a monetary tightening policy is being applied not only in Vietnam but also other countries to keep inflation under control. Tien said the Bank of England after five times raising its key rate once again confirmed that it would continue hiking the rate from the current 5.75% a year to 6% a year by this summer. The European central bank also had the same move when preparing for increasing its key interest rate from its all-time high rate of 4% a year to 4.5% a year at the end of this year, Tien said.

In Vietnam, although the central bank has been taking a cautious approach to manage monetary policy since 2004 when inflation reared again, the SBV has recently taken stronger measures by doubling the compulsory reserve ratio to 10% and limiting total securities loans at 3% of total outstanding loans of banks.

Those moves together are employed with open market operation tools to reduce money in circulation with inflation being the primary concern.

Le Xuan Nghia, director of the SBV’s banking development strategy department said it’s high time to take stronger but still cautious action against inflation, which has remained relatively high in the last three years. Prolonged high inflation would adversely impact economic growth in the long term, Nghia said.

“Just keeping inflation slightly lower than the economic growth rate, as has been the policy in the last few years may be suitable in the short term however we should not continue maintaining such a measure. In order to lower inflation, other monetary measures should be used and applied consistently. Accordingly, the central bank must play the major role in controlling inflation by its monetary measures,” added Nghia.

 

Category: Finance