A top State Bank of Vietnam official said further easing monetary policy isn’t the only solution to the economy’s problems, in comments seen as pushing back against repeated calls from political leaders for lower interest rates.
(Bloomberg) — A top State Bank of Vietnam official said further easing monetary policy isn’t the only solution to the economy’s problems, in comments seen as pushing back against repeated calls from political leaders for lower interest rates.
“Monetary policy is not a magic wand,” a post on the central bank’s website said, citing Deputy Governor Dao Minh Tu’s speech in a conference Tuesday. “Even if interest rates decrease, it is only a tool to support businesses, not to replace all other policies.”
The comments follow repeated calls from leaders including Prime Minister Pham Minh Chinh to reduce rates further to support businesses, amid inflation decelerating for five straight months. But Tu suggested that the State Bank, which has already cut rates four times since the start of the year, has concerns that go beyond price gains.
“If you rely too much on monetary policy, in the short-term, you can solve the difficulties of enterprises.” Within a few years, though, “it will show instability in bad debt and in the system’s safety,” he said.
Already Vietnam’s construction sector, which made up almost 6% of the nation’s gross domestic product in 2021, has suffered on account of builders taking on too much debt, as also the Covid-19 pandemic that damped demand and a government crackdown on corruption. The property sector woes add a new layer of challenge to the trade-reliant economy that’s seeing exports slump, prompting government calls for monetary support to achieve a 6.5% gross domestic product growth target this year.
SBV isn’t alone in facing pressure from the government. Last year, questions rose around central bank independence in Southeast Asia after authorities in the Philippines pushed through a wealth fund plan amid opposition from monetary policymakers, and Indonesia added job creation to the monetary policy remit.
“If conditions allow us, the State Bank will continue to lower interest rates, with commercial banks continuing to reduce costs, thereby lowering lending interest rates to support businesses,” Tu said. He noted that there’s a need be prudent with regard to adjusting policy rates to ensure the safety of the banking system and the nation’s financial security.
Although reversing the slide, according to Tu, is an extremely difficult task for the SBV, he said “the State Bank will make every effort in order to solve the immediate problem,” including through measures such as delaying and restructuring repayment terms for loans to support struggling borrowers.
Credit growth in the first six months of the year was at 4.73%, Ha Thu Giang, head of the central bank’s lending department, was cited as saying at the same conference. That is about half the expansion from the same year-ago period, according to data from the central bank.
Falling demand in investments as well as declining domestic and international consumer consumption has led to a rise in companies’ inventories and abundant liquidity in banks, according to Tu.
The regulator has “used feasible solutions and steps” to prevent the collapse of businesses, mass layoffs and social instability, he said. It has been able to keep the money market and currency exchange rate stable, Tu said.
(Updates with details throughout)
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