There has been
no sign of showing that the State Bank is considering loosening the monetary
policies now, five months after applying the tightened monetary policies.

The State Bank’s head office

The State
Bank has sent a message to the public that it will not raise the required
compulsory reserves ratio, not issue bonds, continue to tighten the credit
growth, keep the deposit ceiling interest rate at 14 percent and not to set a
cap for lending interest rates. All these things show that the central bank
does not intend to loosen the monetary policies right now.

Protecting liquidity like
“maintaining dykes”

According
to the State Bank’s Governor, Nguyen Van Giau, the central bank has been
helping commercial banks keep the liquidity stable by refinancing the banks and
purchasing foreign currencies from the banks.

On May 5,
6, 9, 10, 12 and 13, when the interbank interest rates were pushed up, the
State Bank had to “pump” money into circulation through different channels,
including the foreign currency purchases. The bank purchased up to 200 million
dollars some days.

In order to
reserve money to give support to the right banks, the State Bank has been
maintaining the open market operation (OMO) in a special way. The central bank
believes that the banks, which own many valuable papers, always have good
corporate governance and firm liquidity. Therefore, it does not let the money
to flow to the banks which can be described as “carrying coals to Newcastle”.

At the same
time, the State Bank has been trying to drive the cash flow in the society to
the banking system like attracting fish to the fish net. However, in order to
attract capital the bank does not offer high interest rates, but it has been
applying other measures.

First of
all, the bank set a cap on the deposit interest rates at 14 percent per annum,
while it does not set any ceiling to the lending interest rates. After that, it
orders banks to clock the “credit valve” to non-production sectors. By December
31, 2011, the outstanding loans to non-production sectors (real estate,
securities…) must be reduced to 16 percent of total outstanding loans from the
current level of 20 percent.

Though the
deposit interest rates are low which cannot bring real positive interests in
the context of high inflation, people have no other choice of depositing money
at banks. They cannot inject money in other markets, such as gold or real
estate markets, because the markets have become lackluster after the bank
blocks the credit flow to the places.

The latest
report by the State Bank released on May 25 shows that the deposits from the
public have increased by 11.84 percent.

As such,
observers have commented that the State Bank has scored three goals:
stabilizing the gold market, stabilizing the foreign currency market and
protecting liquidity.

However,
ignoring the advices by the experts on setting up a ceiling on lending interest
rates in order to keep the interest rates affordable to businesses, the State
Bank still keeps the interest rate policy unchanged. Only the cap of 14 percent
has been set on deposit interest rates, while no ceiling lending interest rate
has been imposed. The State Bank also does not loosen the monetary policies
under any forms, except pumping money to the banks which need support to
improve liquidity.

High inflation is the key

A question
has been raised of why the State Bank has been so persistent to its policies,
ignoring the advices from many experts? And the answer has been found: the high
inflation does not allow the bank to loosen monetary policies.

According
to the General Statistics Office (GSO), the consumer price index in May 2011
increased by 2.21 percent over April 2011, by 12.07 percent over December 31,
2010 and by 19.78 percent over the same period of the last year

Meanwhile,
according to the State Bank, by the end of 2010, the total outstanding loans to
the national economy had reached the level which was 1.2 times higher than the
2010’s GDP (104 billion dollars, or 1.5 millions of billion dong).

As such,
when the CPI and the credit are still high, it would be an action of “pouring
more oil into fire” if the State Bank loosens the monetary policies.

Source: TBKTVN