The consumer price index in the first half continued posting a high increase of 5.2% and 7.5% year-on-year and economists are debating reasons for the high CPI. Many people attributed the high inflation to the central bank’s monetary policies. Governor of the State Bank of Vietnam Le Duc Thuy in a recent press conference rejected such views, saying “inflation last year and this year was not attributed to monetary factors. Thus, there is no need to take measures related to monetary policies any further except for unanticipated factors to rein in inflation in the forthcoming time.”
Drought and bird flu that caused a loss of 1.3 trillion dong last year pushed up prices by 5% while total money supply increased by 22%, partly boosting CPI by another 1% and the forex rate did not significantly impact the CPI rate. “In our estimation, if the forex rate rises by 1%, inflation will accordingly increase by another 0.16%. Furthermore, it is supposed that if the forex rate weakens further it would at most, boost inflation by 0.7%,” Thuy said.
The SBV has taken some measures in a bid to curb inflation. For example, the SBV has twice raised the discount rate and refinancing rate by another 0.5% a year each as well as doubled the compulsory deposit reserves.
When asked whether the SBV will take stronger measures on monetary policies from now until the end of this year, Thuy said “we have not yet seen any need on boosting the discount rate and the refinancing rate. What the SBV now pays attention to is how to improve credit quality and to reach credit growth of some 25% this year.”
According to Thuy, perhaps Vietnam only, an economy which contains numerous unforeseeable effects, puts forward so many solid figures such as the annual CPI while such countries having stable and strong monetary foundation still have to use a fluctuation band of +/-50% of CPI. “For example, Britain and France have to set up a targeted fluctuation band of 2% +/-1% of CPI while Vietnam puts forward specific figures,” said Thuy.
According to a report by the SBV, the monetary market in January-June period was relatively stable with slight increase in interest rates: deposit interest rates inched up by some 0.12-0.6% a year, short-term lending interest rates advanced by some 0.3-1.2% a year, long-term lending interest rates rose by 0.9-1.8% a year. Foreign currency interest rates alone grew sharply due to impacts from the international market. Regarding the forex rate, the forex rate in the first half inched up by only 0.55% compared to December 31, 2004 nearly equal to the figure of 0.52% of the same period last year. It is projected that the full-year’s forex rate will not increase more sharply than last year.