Did you know commercial banks are complaining about the central bank’s moves to tighten monetary policy?

I understand why bankers are complaining about the central bank’s decisions, because their business will be adversely affected, for a time. However, I think its moves are correct, though they may shock the market.

The central bank goal is to curb inflation, and it needs to show it can do so. Before, it seemed to be dismissed in the fight to reduce inflation since it was not a member of the taskforce on domestic market regulation.

The decisions by the State Bank will force commercial banks to operate more effectively and prompt them to say ‘no’ to bad projects. Therefore, the credit tightening policy, in the long term, will bring benefits to the market.

Do you believe the central bank’s monetary tightening policy will successfully help curb inflation?

I firmly believe the moves are exactly what the market needs. It is the same as a doctor being able to determine a disease in order to prescribe the right remedy. Each disease has its own cure.

However, I think the central bank’s decisions will not solve the inflation problem alone. We still need to cut Government spending and improve investment efficiency. We should prevent big State-owned groups from making ineffective investments.

However, it is clear that the monetary policy the central bank is applying will influence the real estate and stock markets. What are your opinions on this?

The policy will certainly slow speculation in both markets. We don’t have a healthy real estate or stock market yet, and economists say there is a real estate bubble that threatens to pop in the near future. Vietnam’s real estate market is abnormal in that prices are among the highest in the world. I think it would be better to burst the bubble and take the real estate market from there.

Do you mean the central bank’s policies will help the two markets become healthier?

I do. A market cannot operate well if there is too much speculation, and we need to take action to correct this. With the current overly high prices, very few Vietnamese employees will ever be able to purchase a house.

The high economic growth seen in the last few years was based on big investments. If the central bank tries to tighten credit, production and business will significantly slow due to the lack of capital. Do you think this will slow down the economic growth?

You may know that investment efficiency can be measured by the ICOR index (Incremental Capital Output Ratio). Our ICOR is currently very high, meaning we spend VND5 to get VND1 in growth. This evidence our inefficient use of capital most, which will hurt us in the long-term.

If we have good investment policies which emphasize investment efficiency, I think a high growth rate will be maintained. That said, I don’t think people care much about the growth rate, they care more about how their lives can be improved.

Tran Du Lich, Head of the HCM City Economics Institute: this is the optimal solution

Though the central bank’s policy may affect bankers and others right now, it is the optimal solution to the biggest problems. High inflation and skyrocketing prices will continue to adversely affect the lives of people, and I think the policy will especially benefit low income earners.

Associate Prof Dr Nguyen Trong Hoai, Dean of Economic Development Faculty under HCM City Economics University: businesses will suffer

Tightening the monetary policy is needed to curb inflation. However, bankers will face major challenges. Meanwhile, businesses will find it hard to access loans. Higher interest rates will lead to higher production costs and less competitiveness of Vietnam-made products. In general, the policy will have big influences on many fields of the national economy, especially the real estate and stock markets, and production. Regarding the consumer price, I don’t think there will be further increases, though the production cost will be higher, as the purchasing power will be weaker.

Source: NLD