In 2011, the interest rates will go down: expert
Dr. Tran Hoang Ngan, Deputy President of the HCM City Economics University, and a member of the National Advisory Council for Monetary Policies, said that in order to curb the CPI at seven percent in 2011, it is necessary to tighten spending to reduce the budget deficit and control trade gap.
While talking with local press agencies, Ngan said that most noteworthy point in the Prime Minister’s message released at the beginning of the year was the emphasis on the quality of growth as opposed to just the target growth rate. This could be understood as Vietnam trying to build a firm foundation and striving for sustainable development.
How do you think will the world’s economic performance affect Vietnam’s economy? What are the most important points in the monetary policies management?
In general, the government needs to anticipate different scenarios and be prepared to respond to unexpected financial and monetary situations. For example, it needs to think about what it should do if the US approves bailout packages or a big foreign capital flow returns to Vietnam. The government also needs to consider what Vietnam should do if the world’s oil price climbs to $120 per barrel, if the world’s food price increases, or if the rice export prices increase, thus affecting the inflation.
Regarding monetary policies, I personally think that will be no more “room” to make big changes. The interest rates have climbed to their peak and everything will be decided by the market supply and demand. In the immediate time, the State Bank needs to prevent interest rates from increasing further and it needs to try to lower interest rates as soon as the inflation is controlled. The end of the first quarter of 2011 could be a reasonable time for slashing interest rates.
Do you think that this goal will be feasible if the price of some goods, including petroleum, coal, electricity and cement increases especially if have been scheduled to increase at the end of the first quarter and early second quarter? Will the price increases will lead to the high inflation rate?
In theory, the price increases of these goods will certainly lead to the price increases of other goods and inflation. However, all the possible impacts have been anticipated and were considered when establishing the targeted inflation rate of 7 percent. We should adjust the prices of different goods in different periods in order to avoid shocking people.
The banking sector decided to obtain the credit growth rate at 23 percent (the targeted level was 25 percent in 2010, and the actual level was over 27 percent). Will the modest credit growth rate be able to ensure enough capital for businesses?
The government has decided to tighten budget spending. In 2010, the budget deficit was at 5.8 percent, while a 5.3 percent has been projected for 2011. I think the targeted 23 percent credit growth rate is reasonable.
We need to tighten our belt. We should delay the implementation of unnecessary projects and efficiently use capital.
The government’s goals are clear: the inflation rate should not be higher than 7 percent, while deposit interest rates should not be more than 10-12 percent. According to the National Advisory Council for Monetary Policies, the interest rates in the first quarter will be 14-17 percent per annum (deposit – lending interest rates), and will reduce to 12-14.5 percent by the second and third quarters.
What do you think about the foreign currency market in 2011?
I have suggested that it is necessary to adjust the exchange rate to make it suitable to the market performance. The Vietnam dong interest rates should also be set at reasonable levels in order to encourage people not to convert dong into foreign currencies.
There will not be big changes in 2011, therefore, Vietnam dong may increase in value.
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