Following the central bank’s decision to devalue Vietnam dong by 9.3% on February 11, the market has seen gold and dollar prices running wild as the public is worried about a possible further depreciation of the local currency. Furthermore, the stock market had also been adversely affected, with most stocks crashing to the floor on Monday as investors feared more uncertainties ahead in the absence of strong actions by the Government.

Michel Tosto, director of institutional sales and brokerage at Viet Securities Co., told clients in a comment on Monday that as of last Friday, the Vietnamese had turned extremely negative and the Government’s inaction that had been plaguing them.

“In addition, the press reported on Tuesday that the Government officially approved a 15% increase in electricity price from March 1, a move that coupled with the recent devaluation will surely put great pressure on the already galloping inflation,” Tosto said.

He added local retail investors were taking note and moving out of stock markets and probably into gold. “While the central bank is talking about decreasing loan growth this year, this is just talk for the moment. Markets need clear and strong action and we’re not getting this at the moment,” Tosto said.

Although the Government has yet to take any formal action to cope with the current dismal situation, the central bank’s Governor Nguyen Van Giau in an interview with local media on Monday said that measures would be decided soon to tame inflation.

“The Government intends to launch four measures to reduce the total money demand (as a way to curb inflation). These are aimed at increasing the budget income, decrease the budget deficit to lower than 5% of GDP, review the public investment portfolio and stop ineffective projects, and save 10% of routine budget expenditures,” Giau said. 

“These measures are expected to reduce about VND60 trillion in money supply.”

Giau said the central bank had proposed the Government further trim credit growth this year to less than 20%, even to 18%-19%, instead of 23% as earlier planned, which would help cut about VND50 trillion in money supply.

“If the money supply decreases by over VND100 trillion, the demand for import will also fall sharply as imports normally account for 30%-40% of the total money supply, which in turn would have positive impact on the forex rate,” he added.

Economist Le Dang Doanh applauded the forthcoming measures mentioned by the central bank governor, but said the Government needs to live up to such measures.

Cutting the budget deficit, improving State-owned enterprises’ business efficiency, and boosting savings are all needed, and the Government must take action on those measures, he said.

“The Prime Minister will have a meeting to hear experts’ comments on Wednesday and I will tell him these issues in a straightforward way. The situation is so urgent and it is high time the Government leader have strong and clear action to appease the public as the top priority now,” Doanh said.

However, Doanh made it clear that the measures as mentioned by the governor would not bring about immediate effects.

Such measures would not bring stability on macro balances until after two to three years, but Vietnam needs to stabilize the economy and reduce inflation to consolidate public confidence, Doanh said. He added the stock market would be strongly impacted by these measures, but said there should be no direct intervention into the equity market.

Echoing this view, Le Tham Duong, head of the business management faculty of the HCMC Banking University, said the stock market might tumble given the current weak macroeconomic fundamentals.

Duong said the above measures if properly executed would only produce results in the longer term as “prices will not fall again in the immediate future.”

However, stability signals would appear if the Government focuses on working out those measures, he added.