Governor of the State Bank of Vietnam (SBV) Lê Minh Hưng: Stable monetary policy in “global chaos”

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Monetary policy is stable in the drastic fluctuations of the global market. Photo: H.Dịu

Speaking at the online conference with local authorities in the morning of 29-12-16, the State Bank Governor Le Minh Hung said that the control of inflation below 5%, and core inflation below 1.87% has created marginsin operating cost and facilitated the administration of interest rates in 2016.

Right from the beginning of 2016, interest rates have always been under pressure of inflation due to growth target at high levels and escalating needs for mid and long-term investment capital. Moreover, Government bond releases with large volumes and longer maturities in 2015 also made a sign for inflation. However, the central bank still kept mobilizing interest rates and loans stable and even lower. Besides, the average lending rate fell 0.5-1% until the end of 2016 which has enabled a credit growth of 18.5%, achieving the target set by the National Assembly at the beginning of the year.

According to the Governor, annual credit growth has been picking up in recent months with a lot of positive changes in credit structures, especially on the priority areas set by theGoverment. In particular, thanks to the strict management of credit quality,risk segments have been identified so that credit quality of high risk sectors such as real estate is also covered.

Thanks to efforts of the State Bank, monetary policy and the foreign exchange market in 2016 were kept steady, the needs for foreign currency liquidation were ensured so thatconfidence in the domestic currency was also strengthed.

"Despite such very remarkable evolutions of the global markets as: Brexit events, the US presidential elections, and chaotic fluctuations of some currencies, the domestic foreign exchange market remained stable. Stable interest rates without the exchange rate fluctuations play an important role in the management of monetary policy and the consolidation of investors’ confidence,"stressed the central bank governor.

Accordingly, the State Bank of Vietnam (SBV) devalued the Vietnam Dong (VND) by 1.1-1.2% but the liquidity was kept stable in order toreduce negative impacts on the market.

"Compared to the same period last year, there are many positive changes in the control of macro–economy. Basically, the market is stable and guaranteed, "said Governor Lê Minh Hưng.

Regarding the restructuring of the banking system, the central bank governor said that the bad debt elimination has traveled many important steps to ensure the quality and safety of the system. Therefore, the banking system in 2016 achieved encouraging results.

However, at the meeting on 28-12-16, limitationsof the macro economy in 2016 pointed out by the Prime Minister also related to commercial banks' weakness such as: loss of capital, high risks, and acquiring of a number of banks for 0 VND.

Therefore, the SBV Governor Le Minh Hung remarked some key points for the development of the banking sector as follows: the credit structure must be controlled strictly to better identify risks, bad debts and restructuring of credit institutions still pose significant challenges not only for 2017 but also the next year; and the legal framework for banking activities should be completed as soon as possible.

However, Governor Lê Minh Hưng clearly pointed out that the economy in 2017 will face various difficulties and challenges, from the global economic environment with potential uncertanties such as: weak global trade growth, and currency devaluation to subsidizeexports.Therefore, the work of operating monetary policy and the banking system in 2017 should be taken more seriously in order to stabilize the macro-economy at a reasonable level.

Moreover, in 2017, Viet Nam is likely to face both external and internal challenges in implementing its monetary policy: capital pressure, exchange rate management, and the bond market’s impact on interest rates. Therefore, the central bank will try to control interest rates, increase predictability, andsustain macroeconomic balances to control loan interest rates. At the same time, interest rates in the medium and long term are kept stable as the government's direction.

From these objectives, the SBV Governor proposed that the government should consistently follow the objectives of macroeconomic stability and inflation control. The Ministry of Finance should specify volumes, terms and interest rates of government bonds so that the banking system could carry solutions to control liquidation and monetary activities, etc.

In particular, in 2016, Governor Le Minh Hung emphazied the coordination of the Ministry of Public Security and the Ministry of Information and Communications in handling false rumors with evil intentions which have negatively impacted the economy.

From the above results, Prime Minister Nguyễn Xuân Phúc has highly appreciated the currency operation of the central bank in avoiding market shocks and facilitating credit growth at high levels. In details, forex reserve shave reached over $US 41 billion, the highest ever. In fact, the central bank has been actively dealing with ineffective banks. The Prime Minister asked the Ministry of Public Security to coordinate more efficiently with the central bank to deal with these weak banks.

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The Prime Minister also confirmed that in 2017, economic situations are getting more complicated so it is important to sustain the macro-economy. In detail, there are 5 million billion vnd of credits in the economy, and 2.3 million billion vnd of public debts so the central bank must implement flexible solutions to manage and decrease the interest rates at reasonable levels.