Monetary tightening should not stay for long

Drastic and comprehensive efforts missing in the fight against inflation, proposal for short-term implementation of monetary tightening and the like are among the most outstanding issues that were discussed at the National Assembly meeting on August 5.

Monetary and credit policies together with inflation attracted most attention from the delegates. The recent tightening policy has been highly regarded despite the consequent interest rate hikes which have adversely hitting manufacturing and trading activities and inflation control. Too many commercial banks in a small-scaled economy are also founded unreasonable.

Fixing the same credit growth cap for all banks, a lending and borrowing ceiling rate in the recent times have not been considered appropriate since these have triggered a hidden interest rate race among commercial banks for capital mobilisation.

For the second half of the year, the delegates urged preferential policies for farmers and agriculture and credit squeeze for real estate and long-term inefficient projects.

Also, proposals for interest rate stabilisation, appropriate credit growth adjustments and tough penalties for banks’ violation have been brought forward. Monetary and credit tightening should only be carried out under emergency circumstances so as to tame inflation.

In respect of the galloping inflation growth, it could, to some extent, be attributable to objective issues such as poor forecasting and improper planning. In addition, failure to control prices particularly those of food and foodstuff and other essential commodities has deepened inflation woes. Thus, revision of the current inflation control measures has been strongly recommended so as to bring the inflation rate down to one digit in 2012.

 

Category: Finance