Vietnam has been advised to tighten monetary policy

Prior to that, HSBC, ANZ and IMF also recommended Vietnam tighten monetary policies.

Since 2015, the monetary policies in Vietnam have been loosened with the credit growth rate standing at high level of 18-20 percent and interest rates on the decrease.

While the fiscal policy faces an increasingly high deficit, the loosening of the monetary policies has helped maintain economic growth.

However, there are always two sides of a coin. The monetary policy loosening has pushed the prices of some assets and investment items up in the last three years. The stock market has been increasing more rapidly since 2016, while the real estate market has heated up since early 2017.

The loosened money supply has also put pressure on inflation. The inflation rates in 2016 and 2017 were stable, but the rates in the first five months of the year increased significantly compared with the same period last year. 

Some analysts believe that this year’s inflation rate may exceed the targeted 4 percent.

Analysts all believe that it is now time to tighten monetary policies, especially when other economies, from developed to emerging, all have raised their prime interest rates. The US FED plans an interest rate increase this year after it did this three times in 2017.

If Vietnam tightens monetary policies too quickly, this will put pressure on the economy and lead to the collapse of asset markets which are in a ‘sensitive’ period.

The stock market may see a steep slippage, especially when foreign investors have been selling more than buying recently. Meanwhile, the real estate market may become frozen again. If so, the banking system would see bad debts soar.

Though FED has clarified its roadmap for monetary policy tightening, which allows investors to make reasonable investment decisions, the global financial market fluctuates every time the FED raises interest rates. 

The recent US stock market correction and the capital withdrawal from frontier and emerging markets are the consequences of the FED’s policies.

If tightening the monetary policies again, Vietnam’s asset markets would have to experience shocks. The tightening will also, to some extent, affect GDP growth as businesses will be reluctant to borrow money to expand production.

However, if not tightening monetary policy, the risks will be very high.

RELATED NEWS

Vietnam economy runs on loans: economist

Vietnamese put gold, dollars in investment and business production