Some experts say that the move by the central bank in the first nine months of the year to spend a lot of VND to buy dollars in, and the big volume of overseas remittance both have caused the high inflation. What is your opinion about that?

The foreign direct and indirect investment capital flow into Vietnam has been increasing since Vietnam joined the WTO, thus putting pressure on the local currency, and creating difficulties for monetary policy management, especially when the stock market was hot.

As Vietnam strives to keep the VND/US$ exchange rate beneficial for exports, the State Bank had to buy dollars to increase foreign currency reserves. However, the move has certainly led to the increased money supply, which has caused high inflation.

The central bank tried to reduce the pressure from inflation by withdrawing money from circulation when it used open market operations and issued bonds. Additionally, it also required higher compulsory reserve ratio for bank deposits in order to limit cash in circulation. The measures all required high costs and pushed the interest rates up, which will affect economic growth.

I personally think that Vietnam should follow a forex policy which allows a more flexible exchange rate in order to reduce the overly deep intervention of monetary policy in curbing inflation.

How will the state bank’s intervention affect other macro balances?

Not only Vietnam, but other countries in the world are also facing high inflation. The inflation rates are high as a result of higher import input material prices.

In Vietnam, the high inflation has also been caused by the massive inflow of foreign direct and indirect investment capital since Vietnam joined the WTO.

To some extent, Vietnam proves to be too ambitious when it wants both a monetary policy that allows macro stability and a policy that increases the competitiveness of exports.

I think that the State Bank should consider when it will withdraw money from circulation. Sometimes, the tardiness in implementation may cause bad effects.

Source: Lao dong.