Vietnam central bank vigilant on inflation, cautious about credit risks

Vietnam’s central bank will manage its monetary policy in coordination with its fiscal policy to support economic growth, but it will stay alert about the return of inflation and take prompt action to curb it, says Governor Nguyen Thi Hong.

If inflation was kept below the National Assembly (NA)-mandated threshold of 4.5%, the State Bank of Vietnam (SBV) will take growth-bolstering measures as it has done recently, Hong said at a Q&A session of the ongoing NA session Monday.

Referring to the VND145-trillion ($5.73 billion) loan package for low-income homebuyers and the VND60-trillion credit package for the fisheries sector, she said: “We need to be cautious about inflation. If inflation returns, we will take countermeasures to tame inflation and keep macroeconomic conditions stable.”

In the context of the Vietnamese government striving to boost economic growth, the fiscal policy will be selective given that public debt, foreign debt and fiscal deficit are far below upper limits, she said.

The government has directed relevant authorities to study expanding the fiscal policy properly so as to reduce its overreliance on the monetary policy. Boosting the corporate bond market was an option.

Credit in Vietnam is currently equivalent to 120% of GDP, higher than that of regional peers and above the recommendable level by the World Bank.

“Therefore, if Vietnam continues to rely on monetary policy, it can potentially face great potential risks,” Hong said.

According to government data, the consumer price index (CPI), the main gauge of inflation, increased 3.78% year-on-year on average in the first 10 months of this year, below the 4.5% target.

Regarding credit for the real estate sector, which accounts for one-fifth of total outstanding loans, Hong said that the SBV does not ban banks from lending to this sector and that this totally depends on banks’ risk appetite and capital capabilities.

As 80% of deposits in Vietnam are short term deposits, banks have to balance their lending with liquidity, she added.