First of all, the monetary management policy was aimed at too many goals, with some of them conflicting with each other. For example, if containing inflation was chosen as a priority, economic growth must be sacrificed, according to the report obtained by the Daily.

Failing to identify its main target, the policy was sometimes left in passive position and had slow response to the market changes.

Also, the mechanism in conveying the effects of the monetary policy was not clearly defined. At present, the central bank has yet to have quantitative analysis of the impact of the changes in money supply on the ultimate goal of monetary policy, as well as on the credit, interest and forex rates. Clearly identifying the mechanism is crucial in monetary management to achieve the desired goal, according to the report.

Moreover, the system of monetary criteria was not clear enough to deliver the effects of the decisions in the policy to its targets. The correlation between money supply and inflation in Vietnam was also unclear.

Furthermore, the capability to regulate the market conditions like money supply and interest rates was still limited and inefficient, because the central bank failed to control the cash flow in the economy including foreign currency inflow and outflow, banking loans, and the State budget revenue and expenditure.

Besides, the monetary tools were not well managed due to the limited choice and usage of each tool. The money supply operation was to some extent affected by the Government’s directions to supply capital for certain specific targets, while the selection a prime interest rate and operation mechanism were still under study.

In addition, the central bank’s implementation of monetary policy was administration-oriented. For instance, the regulated ceiling deposit rate of 14% per year was no longer appropriate with the actual situation when inflation was on the uptrend.

Lastly, the country’s monetary policy was aimed only for short-term, said the report.

The report “Inflation target and the implications for monetary policy framework in Vietnam” was compiled by the National Assembly’s Economic Committee with assistance from the United Nations Development Organization in Vietnam.

Source: SaigonTimes