The development of the monetary policy of Vietnam in the period from 2008 to 2018
- QTH-3Q-19 Bui Hong Hanh
- Feb 28, 2022
- 5 min read
Updated: Mar 27, 2022
State Bank Governor Le Minh Hung said that "Financial stability, maintaining the lifeblood of the economy is a key condition for macroeconomic stability and sustainable growth".
Because the economy is always fluctuating and constantly changing, every year the government always has to come up with a new plan to implement the country's monetary policy, through which, this policy has achieved certain effects. In order to clearly see the maturity of the domestic economy, the article analyzes the development of monetary policy in the 10-year period from 2008 to 2018.
Macroeconomic stability strategy in 2008. This is one of the most important and impressive results. At the same time, it is also the top goal of monetary policy during the past ten years. First of all, fight inflation and keep the dong stable. Compared with 2007, 2008 has made new strides with appropriate, flexible, and flexible interest rate and exchange rate policies combining other relevant tools. In these ten years, monetary policy has promoted and positively impacted the money market, keeping inflation and stabilizing the dong. In particular, the application of the half-market interest rate policy has brought into play its effectiveness and reflects the effectiveness in achieving the goal: "stabilizing the macro-economy and supporting economic growth".
On the other hand, effective exchange rate policy and gold market management. The volatility of gold prices due to the global economic crisis made gold a haven and an investment and speculation channel during the early years of the 2008-2018 period, significantly affecting the currency market's macroeconomic stability and dong value. In the period 2008-2012, every time gold fluctuated, it led to fluctuations in the exchange rate and gold - foreign currency pairs, which greatly affected the stability of the currency and foreign exchange markets, and the strength of the economy macroeconomically through the exchange rate - interest rate - inflation relationship.
In third place, the Vietnamese currency market is stable. This is an essential factor that supports and results from macroeconomic stability. The stability of the money market makes an indispensable contribution to macroeconomic stability. Market factors: interest rates, exchange rates, and gold price, have been favorable in recent years and are always in the direction of the State Bank. This stability is also a driving factor as production and business activities of enterprises develop, promote economic growth, create a favorable business environment and serve as a foundation for macroeconomic stability.
And last but not least, support economic growth. The country's economy has grown and developed in the past ten years with the context of many difficulties and challenges from objective factors. However, the results and achievements achieved during this period have confirmed the effectiveness of economic policies and the management of the economy by the Government, thereby making an essential contribution to maintaining production, recovering, and operating the economic production development.
In 2018, after ten years, the procedure of credit institutions has been making positive changes in growth and development, improving financial capacity, competitiveness and governance quality to improve operational efficiency, reduce input costs, and reduce output costs. Increased income from services limits risks from credit activities. This is a practical result and is marked by the policy mechanism of the State Bank in the recent period. Specifically the following aspects.
The financial policy operating objective in 2018 is to control inflation at the level approved by the National Assembly of 4%, stabilize the macro-economy, and contribute to supporting economic growth at a reasonable level; ensure liquidity for credit institutions, stabilize the money market, and stabilize the foreign exchange market. Up to this point, it can be said that monetary policy has achieved its goal in the context that the world economy and currency are not moving in an auspicious direction.
Secondly, in 2018, inflation pressure on Vietnam was still quite heavy. Nevertheless, many state-owned goods have controlled inflation stably during the year; there were no price shocks, the consumer price index average annual consumption is about 3.5%, reaching the inflation target approved by the National Assembly. Controlling inflation stably at this level, from the perspective of monetary policy, it can be seen that the SBV has a well-controlled money supply and actively adjusted the money supply to affect inflation. The movement of core inflation reflects that this is reasonably controlled, in harmony with the changing in commodity prices due to the impact of non-monetary factors, ensuring the control of inflation at the target level. Positive support for inflation control and reasonable money supply regulation, control of bad debt, and improvement of cash flow efficiency (credit capital) also have a good impact on inflation control.
On the other hand, in 2018, although credit growth was strictly controlled below 15%, priority capital flows focused on manufacturing, processing and manufacturing, agriculture, and rural areas, making a significant contribution to the economy's growth and improving the economic structure. In particular, controlling inflation and maintaining monetary and exchange rate stability in the context of the appreciation of the US dollar is a vital driving force to attract foreign investment inflows into production and business development.
From that, it can be concluded that monetary policy has actively supported the process of restructuring the commercial banking system, such as restructuring capital improving the quality of capital use. Due to measures to tighten credit growth and requirements to increase capital adequacy ratio in operations, as well as timely liquidity support measures for credit institutions, thereby creating advantageous conditions for credit institutions. Then, conditions for credit institutions to increase long-term capital mobilization, reduce the proportion of short-term capital mobilization, and expand long-term investment to support economic restructuring. In addition, controlling inflation and stabilizing the exchange rate are necessary conditions for the State Bank to increase foreign exchange reserves to reach a record high level in 2018, which shows confidence in the policy. The Government and the State Bank have been consolidated, supporting other macroeconomic policies in attracting foreign investment and improving the economy's ability to withstand shocks.
In the next period, the world economic-political situation may continue to have unpredictable and unstable developments, and the trend of monetary policy management of significant economies is also challenging to predict. Besides, the control of economic and exchange rate policy may face many challenges and be affected by adverse developments of the world economy. So it can be said that there will be many unpredictable factors when the trade war escalates, monetary tightening policy of the Fed and many major central banks in the world. Therefore, looking back at this 10-year milestone may be helpful to policymakers in drawing lessons learned from this period for the next stage's development of Vietnam's economic policy.
The first lesson is said to be the suitability with the country's socio-economic development situation, sticking to the target, and respecting the market principle of monetary policy. This is an excellent lesson for the formulation, issuance, and administration of the State Bank policies. The success of the SBV's monetary policy is due to the rationality, conformity, and respect for market principles in the process of realizing dual goals: stabilizing the macro-economy and promoting economic growth in the past and stabilizing the economy macroeconomic and supporting economic growth in recent years.
The second lesson learned is respect for discipline and discipline in observing the regulations of the State Bank and the law in the field of banking activities. This is also a valuable lesson that ensures the effective implementation of the Vietnamese State Bank's monetary, credit, and banking policy mechanisms and ensures safe and effective banking operations. In particular, the performance of directional regulations and targets needs to be respected and strictly and fully implemented to ensure the policy is promoted quickly, effectively, efficiently, transparently, and fairly balanced, especially regulations on interest rates, exchange rates, and credit.
The third lesson is how to organize and implement the policy mechanism. This requires the organization and implementation of agencies and units under the Central Bank and credit institutions to be well organized and responsible for ensuring that the policies and mechanisms are put into practice effectively. The content of this lesson includes implementation direction, monitoring, capturing and evaluating results and difficulties, limitations of tools and policies, capturing feedback and criticism from credit institutions and enterprises. From there, continue to promote the impact of the policy or adjust the policy accordingly.
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