Challenges still loom for Vietnam's monetary policy: central bank official

Regulators in Vietnam will continue to face global economic headwinds in 2023, including challenges in running monetary policy, said a director of the State Bank of Vietnam.

Pham Chi Quang, director of the SBV's monetary policy department, made the statement at the Vietnam Economic Scenarios Forum 2023 in Hanoi on Wednesday.

Many countries tightened their monetary policies during 2022 to combat high inflation, he said, adding that the U.S. Federal Reserve raised its interest rates four times by 0.75 percentage points each, which was an unusual move and pushed the greenback to a 20-year high.

He described the dollar gains as a “terrible shock”, and Vietnam had to deal with it “extremely carefully”.

At present in Vietnam, total outstanding loans are equal to 124% of GDP, which is the highest ratio among lower middle-income countries, said the director.

For 2023, the Vietnamese central bank’s top priorities are to maintain the stability of the local currency and control inflation. The regulator will run the policy in a flexible manner, Quang added.

Like Quang, Can Van Luc, chief economist at BIDV bank, said the two tasks were very challenging last year and would continue to be so this year.

However, the economist said there should not be “extreme” reactions against inflation, and credit for businesses and companies should be taken into consideration when tightening monetary policy.

Increasing lending rates would cause big challenges for enterprises, so regulators should provide flexible forex rates instead of raising lending rates, he said, adding that calculations have shown that flexible exchange rates in 2023 will be better than interest rate hikes.

For his part, Nguyen Xuan Thanh from Fulbright University Vietnam recommended the State Bank should be proactive in monetary policy this year, possibly lowering its interest rates when the Fed hopefully stops its rate hikes around mid-2023.