In 2018, the State Bank of Viet Nam (SBV) maintained active and flexible management of the exchange rate to keep the domestic market stable in the face of international pressure. SBV Deputy Governor Nguyen Thi Hong speaks to Vietnam News Agency about this issue.

How did the SBV manage an efficient monetary policy in 2018?

The State Bank actively and flexibly governed monetary policy in 2018 when the world economic and political situation faced many challenges and unusual fluctuations.

At the same time, the SBV also coordinated closely with fiscal policy and other macroeconomic policies to stabilise the macro economy, control inflation and support economic growth at a reasonable level.

Therefore, the average inflation in 2018 continued to be controlled at 4 per cent as the target. The bank had several consecutive years of efficiently managing monetary policy, meaning it made an important contribution to successfully controlling inflation.

The State Bank operated the interest rate policy in a flexible way, in line with the macro balances and market developments to keep relative stability in the interest rate. That created conditions to ensure capital for manufacturing business and supporting economic growth.

For instance, in January 2018, the SBV had its first interest rate cut in the open market operation (OMO) in the past five years from 5 per cent per year to 4.75 per cent to contribute to reducing capital costs for credit organisations. From the beginning of the year, some commercial banks reduced lending rates by 0.5 per cent per year for priority areas.

Monetary and credit indicators increased in line with the target while credit structure according to currencies was developed under the Government’s anti-dollarisation guidelines. Meanwhile, credit for most priority areas increased and credit for areas with the potential for risk tended to slow down.

In the foreign exchange market, despite pressure from the international market, the domestic exchange rate was still relatively stable. In particular, when compared to the level of devaluation of emerging and developing currencies, market liquidity was still guaranteed. Foreign currency transactions were conducted smoothly. Meanwhile, the State Bank implemented net purchase of foreign currencies to increase the nation’s foreign exchange reserves.

For credit management, from the beginning of 2018, the State Bank set a goal of credit growth of about 17 per cent for the whole year based on the National Assembly’s targets of economic growth and inflation as well as the actual situation.

The State Bank also had many solutions to solve difficulties in credit for production and business, and increase the supply of capital to the economy, including direction for credit organisations to have credit growth from the beginning of the year. At the same time, the organisations must be safe and efficient in concentrating capital on production, business and priority areas while strictly controlling credit for areas with risk. The SBV consistently implemented solutions to gradually reduce foreign currency credit under the Government’s anti-dollarisation policy and gradually shift from borrowing foreign currencies to buying and selling foreign currencies.

The monetary policy also ensured stability in liquidity of the money market, reduced interbank interest rates and created conditions for issuing long-term Government bonds with lower interest rates.

Thanks to stable macroeconomic factors, strictly controlled inflation and an improved business environment, Viet Nam has seen increased national credit ratings by reputable international organisations, improving its image in the eyes of international investors. For instance, Moody’s Investors Service upgraded the Government of Viet Nam’s long-term issuer and senior unsecured ratings to Ba3 from B1 and changed the outlook to stable from positive.

What did the State Bank do to control the exchange rate between the Vietnamese dong and US dollar, contributing to curbing inflation and supporting production and business for enterprises?

The exchange rate in 2018 was under pressure mainly from a series of disadvantages from the international market such as the dollar appreciation due to expectations of the Fed’s roadmap on raising interest rates. Other factors included complicated global trade tensions and strong depreciation of the Chinese yuan. Strong devaluation of some currencies of newly emerging countries also had a strong impact on market sentiment. However, by the end of 2018, the exchange rate in Viet Nam maintained a stable trend.

Besides favourable macro factors, to gain success, the State Bank had active and flexible operation for the exchange rate according to situations on the domestic and international financial and monetary markets. The bank coordinated synchronous measures and monetary policies to regulate liquidity and interest rates of Vietnamese dong deposits to stabilise market sentiment.

In the first months of the year, the State Bank took advantage to purchase foreign currency for the nation’s foreign exchange reserves. From February 7, 2018, the State Bank started listing the three-month forward rate to delay use of Vietnamese dong for buying foreign currencies, meaning to contribute to controlling money supply and inflation, while it still bought foreign currencies for the nation’s foreign exchange reserves and encouraged businesses to use foreign currency derivative products to reduce exchange rate risks.

Since June, the foreign currency market has been under pressure from negative developments in global and domestic investor sentiment, so the State Bank coordinated solutions to stabilise the market and ensure smooth foreign currency transactions.

What are the plans for the banking sector in 2019?

The State Bank will manage monetary policy actively, flexibly and cautiously. At the same time, it will coordinate harmoniously with fiscal policies and other macro policies to maintain macro-economic stability, control inflation, ensure major balances and support for business production and economic growth.

The SBV will continue to operate interest rates and exchange rates flexibly in accordance with the macro balance, monetary market developments and management requirements. In addition, it will stabilise the foreign currency market, gain credit growth, improve credit quality and concentrate credit for manufacturing sectors and priority sectors. It will also control lending in foreign currency and increase the nation’s foreign exchange reserves when conditions are right.

For interest rate management, based on macro-economic and monetary market developments, the State Bank will continue to flexibly implement interest rate solutions and combine synchronous monetary policy, aiming at stability in the monetary market and control of inflation according to the target and macroeconomic stability.

The bank will continue to have flexible management for the exchange rate in line with the financial market situation, macro-economic balances and monetary policies as well as closely coordinate synchronously with other monetary policies to stabilise the foreign currency market.

For credit, it will operate credit solutions to control credit scale in line with the orientation. At the same time, it will improve credit quality and create favourable conditions in approaching credit of the economy. In addition, it continues to promote implementation of solutions supporting credit organisations in gaining efficient credit growth and concentrating credit for production and priority areas.

For the open market operations, the State Bank will continue to closely monitor the availability of capital in credit organisations and development of monetary and foreign exchange markets to have flexible open market operations for ensuring liquidity for the system, stabilising the monetary market as well as the exchange rate. — VNS