Currency loosening signals arisen

Currency loosening signals are rising

VEPR’s report points out that during the first and second quarters, due to the increasing need of mobilization, mobilizing growth is going up to 8.23% in comparison with the last months of 2015.

In particular, the amount of currency has been increasing considerably for the first 6 months. Money supply (M2) increased to 8.07% in comparison with the last months of 2015, much higher than the same period of two years ago.

“This proves the first steps of currency loosening compared with the last period “ said Dr. Nguyen Duc Thanh, the Director of VEPR.

One of arguments is that Open Market Operations (OMO) and the securities channel have been busier over the second quarter. According to the statistics by Bao Viet Securities (BVSC), the State Bank has pumped approximately 32,000 billion dong through OMO and 25,700 billion dong via the securities channel into the market.

Meanwhile, credit growth has achieved 6.2% for the first 6 months, equivalent to the ratio of the same period of the year 2015. Although the gap between mobilization and credit decreased in comparison with the average level of 3.5% in 2015, it still remains now.

With regard to inflation, Mr. Nguyen Duc Thanh supposed that the threat of inflation’s return is visible because petrol and other fundamental goods have escaped from the lowest level and are on the increase. It is remarked that economic growth is likely to reach 6% instead of the target (6.7%) despite the fact that inflation is bound to speed up.

Mr. Thanh recommended that the Government should tighten fiscal and currency policy to avoid pressure on inflation and instability.

With the same point of view, the economic specialist Luu Bich Ho said: “ We are stepping on the fault of policy loosening. This is very dangerous because more looseening would not push up economic growth, which may lead to instability. The loosening of our policy against the background of the constrained budget may make instability come back”

Use of gold in payment may return

Concerning the property market, it is witnessed that the gold market has changed considerably for the second quarter of 2016. During the first quarter, the gold price only went up slightly and the gap between the domestic price and the world price was small. However, right after the Federal Reserve (FED) decided to keep the current rate of interest saving and in the event of Brexit, the world and domestic gold prices have been stepped up for recent days. According to VEPR, by the end of the second quarter the domestic gold price has increased by 5.6% compared with the end of the first quarter of 2016 and by 6.4% in comparison with the end period of the year 2015.

During the second quarter, gold mobilizing issue was once referred when the Vietnam Gold Association proposed the Government and the State Bank to establish the national department of gold transaction with the, aim of mobilizing gold from the people. According to the association, people are keeping about 500 tons of gold.

In the periodical meeting in June, The Prime Minister assigned the State Bank to play the leading role in researching, reviewing mobilization of resources from the people including gold and money, which would create the capital for economic growth.

With regard to this issue, Mr. Nguyen Duc Thanh warned “We suppose that the nature of gold mobilization goes against the economic principles. Gold kept by the people is like other property except for its advantage of restoring and preserving. If gold is mobilized, it would be a means of circulation like currency. Thus, the need of gold would rise up instead of decrease. Besides, other activation of needs (e.g. Brexit pushed the world gold price up) would create hits of speculation and accumulation, which may result in more unstable and more vulnerable markets. This would be the main cause of use of gold in payment. This supposition was right to the case of dollarization when the commercial banks raised the positive saving interest rate of USD”

According to VEPR, the State Bank has gradually eliminated gold and foreign currencies from the system of credit organizations. Therefore, the State Bank should implement its policies in a decisive and consistent manner so that it is able to avoid making old mistakes.

Mr. Thanh recommended “We should not keep the thinking of gold mobilization and bringing gold into banks and paying saving interest”

Regarding the exchange rate, VEPR supposed that the exchange rate has been rather stable for the past time and the State Bank would buy USD to increase its reserve for the case that FED raised the saving interest rate in the meeting of June. According to the macro economic report in May 2016 by BIDV’s Research Center, the State Bank has bought approximately 7 billion USD since the beginning of the year for supplementing the foreign currency reserve.