Hard to achieve CPI goal if changes in policies are not made: Top economist

25-Nov-2010 Intellasia | CaFe | 7:02 PM Print This Post

If the government of Vietnam does not make a positive change in policy in future, consumer price index (CPI) will continue to increase, and Vietnam will find it hard to control CPI as per the proposed inflation targets, the newswire CafeF reported, citing the remark of PhD. Bui Kien Thanh, top economist.

Thanh said that the monetary and fiscal policies over the past time were always inconsistent and inefficient, which naturally had an impact on the CPI.

According to Thanh, CPI increase in 2010 is blamed for three main reasons including the government’s capacity to control commodity prices, monetary policy and fiscal policy.

Firstly, the government policy to stabilise market prices in prescribed time limits, allowed the percentage of consumer price increase in each period, could not control price increases, while intangibly creating a loophole for businesses to increase prices.

The second is the exchange rate issue, Vietnam is a net importer, while the increase of the exchange rate has immediate impacts on two matters. First is the impact on goods imported for direct use, the following matter is the impact of raw materials imported for outsourcing and processing (the rate of import of raw materials accounted for 85 – 90 percent, while 10-15 percent of the value was added from Vietnamese labour). When the exchange rates rose, the prices of raw materials increased, leading to the increase of production costs and of course the market price will increase accordingly.

The third issue is interest rates: In the long term, Vietnam has executed the policy to stabilise interest rates and encourage banks to reduce interest rates. But, now, the central bank has suddenly floated interest rates.

This has led to banks increasing deposit rates to 13.5 percent per year (previously the interest rates were controlled at 10 percent and 11 percent). Such high deposit rates have motivated lending interest rates to rise as well, Thanh said.

Recently, many banks have announced lending interest rate increases to 19 percent or even 20 percent. This will make the CPI increase over input costs of enterprises, and affect prices of services, and other commercial activities.

The current fiscal policy is also an issue that should be considered. While the monetary policy is tightened, the government’ fiscal policy has been loosened, speeding up public investment in major projects, low economic efficiency and so much waste.

PhD. Bui Kien Thanh concluded, all problems in controlling commodity prices, interest rates, exchange rates and fiscal policy of the government are inconsistent and unreasonable. As the above analysis, these factors have recently had a direct impact to push up CPI.

“Without a positive change in the policies in the future, CPI will continue to increase and Vietnam is facing a slew of difficulties to achieve its CPI goal,” Thanh recommended.


Category: Economy

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