Interest rate and exchange rate in the view of the Governor

VnnNews – Governor of the State Bank Nguyen Giau shares his thoughts about what was done and will be done by the ‘powerful’ bank.

Governor of the State Bank Nguyen Van Giau

Nguyen Van Giau: In 2008, we had to follow a tightened monetary policy because of the high inflation. However, the problems we faced in 2009 were different, especially the economic downturn. The Government needed to prevent inflation and strive to obtain reasonable economic growth rate. And of course, the State Bank needed to take actions to strives that goals.

The Government decided to launch the short term interest rate subsidy programme worth one billion dollar. At first, there were two options for the package. Option 1, the money should be allocated to big projects which would serve as the ‘driving force’ to stimulate the economy, something like the package launched by China. With Option 2, the money should be used to support some sectors, especially small and medium enterprises. At that time, Cao Si Kiem, Chairman of the Small and Medium Enterprises’ Association gave pessimistic figures about businesses’ operation, saying that only 20 percent of businesses can stand on their legs.

TBKTVN: Some experts believe that the State Bank’s policies have helped obtain some goals, but sometimes, the monetary policies were not flexible and too hesitant. What would you say about that?

We should keep a comprehensive view into the issue.

The US maintained the 0.25 percent prime interest rate for the whole year. Canada’s interest rate was one percent in January and February, 0.5 percent in March and 0.25 percent since then. A flexible policy should mean very cautious policy.

In Vietnam, we were advised to adjust the basic interest rate soon. This would help banks mobilize more capital. However, after weighing pros and corns, we decided to make adjustment a bit later. The interest rate always has a close link with the exchange rate.

Regulating the exchange rate policy is a difficult task. There are two main tendencies now in the world.

The neighbouring country China once set the exchange rate ‘fixed’ for many years and it only devaluated the local currency by 50 percent in 1994.

However, in order to do that, China had been enjoying trade surplus since 1991. They devaluated the currency only after they could save big volume of foreign currencies from trade surplus.

Another tendency is floating currencies.

In Vietnam, we have been following a flexible exchange rate policy put under the management of the state.

Many people advised me to devaluate the local currency more. However, let’s think about what will happen if we borrow money at the time when the dollar is just equal to 7,000 dong and we have to pay debts when the dollar is equal to 17,000 dong?

TBKTVN: So what are the main mottos of the monetary policies for 2010?

Giau: The Government has been striving to obtain the economic growth rate of 6.5 percent and inflation rate below seven percent. Therefore, we need to take initiative, be flexible and cautious.

In 2009, the total money supply (M2) increased by 28 percent because of the credit growth rate at 38 percent, and it was reasonable. However, in 2010, we will slow down the increases, and maybe the M2 and credit growth rates would be 25 percent only.

In 2009, we accepted the ratio of credit growth rate on GDP was 28 percent on 5.2 percent, or 7.3X in the context of economic downturn. But in 2010, the ratio of 3.84 would be reasonable.

VietNamNet/TBKTVN

Related news:

1. Exchange rate fluctuations cause headaches for businesses
2. The pressure on dong/dollar exchange rate may be greater
3. In turbulent era, some businesses find ways to escape exchange rate risks
4. Economist ponders negotiation-based interest rate scheme
5. Top Government economist calls exchange rate ‘biggest threat’

Tags: Exchange Rate, Growth Rate, Interest Rate, The Exchange Rate, The State, The State Bank, Physics games

PostsComments

Comments