A shared concern is that the measures will be taken when financial institutions lack capital in Vietnamese dong, which is affecting the stock market.

On March 17, the central bank, or the State Bank of Viet Nam, will issue bills worth up to VND20,300 that 41 financial institutions in the country have to buy.  Notably, they are not allowed to use the bills in their deals in re-capitalizing with the State Bank.

The director of a Ha Noi-based commercial bank says, “Buying the bills will put us into a more difficult situation in terms of capital. It is quite likely that we must change our interest rates, in both deposits and lending.

Eximbank general director Pham Van Thiet thinks the same. “All commercial banks are currently facing difficulties that come from the State Bank’s policy to tighten monetary regulations and control inflation.”

He adds his Eximbank will face more pressure between now and March 17, the date the bills are issued. Therefore, his bank and others are competing in collecting deposits. Eximbank has increased its interest rates and will have to limit lending, so it will give priorities to its established customers.

Mr. Thiet compares current Vietnamese dong as a small blanket. If it is used to cover the arms, the legs will be cold. He adds other markets such as the credit and stock markets will be affected to some extent.

And the realty market will be affected harder, according to Nguyen Quang Trung, deputy general director of Vietfund. “Many property developers have signed contracts with customers but banks have turned down their calls for capital. If between now and March, the State Bank stills asks commercial banks to buy all bills, both banks and property developers will face more difficulties.

Others’ ideas

Remarking measures to tighten the monetary market, doctor Cao Sy Kiem, a member of the National Consulting Council for Financial and Monetary Policies, says now is a suitable time to withdraw money back.

He says, “One of the major reasons of high inflation in 2007 and early 2008 is money supply. Therefore, controlling inflation right in the beginning of the year should be done.”

“But where needs capital to do business and produce goods, we should not draw capital.

Because if we do this, lending interest rates will increase and this will increase production cost as well as consumer prices,” he adds.

Analysis from an economic expert is in Viet Nam, when interest rates increase, both economic growth and inflation will decrease. When monetary policy is tightened to curb inflation, this affect will economic growth.

Doctor Le Xuan Nghia, chief of the banking strategies section of the State Bank, says drawing part of money to buy foreign currencies is a thing that should be done regularly. Therefore, the State Bank and the Ministry of Finance need to work more closely in carrying out this policy. However, he says it is advisable to avoid an abuse of issuing bills because this may harm the balance of the State Bank.

Doctor Vu Dinh Anh, deputy head of the Institute of Market Research and Prices, the Ministry of Finance, says the State Bank, besides drawing back money, should adjust the forex policy to level the purchasing power of Vietnamese dong domestically and overseas.

 
Source: SGGP