The institute was concerned about the growth of the real estate market as credit pouring into the industry this year has surged sharply, with most of the transactions in high-end segments and property prices continuously rising. — Photo bizlive

HA NOI (Biz Hub) — The Viet Nam Institute for Economic and Policy Research (VEPR) has said the central bank should adopt a more cautious monetary policy to avoid asset bubble risk in the future.

The institute said there should be strict control of money supply in accordance with the nominal GDP growth rate, as the country's credit growth was showing signs of overheating and far exceeding the nominal GDP growth rate.

Statistics from the central bank showed that credit growth in the first nine months of the year increased nearly 11 per cent against December last year. The rising rate was also much higher than the 7 per cent increase in the January-September period last year.

A cautious approach should be also taken on the real estate market to be able to make the market growth sustainable and prevent the risk of a property bubble developing, which often occurred in the country like a cycle, the institute said.

The institute was concerned about the growth of the real estate market as credit pouring into the industry this year has surged sharply, with most of the transactions in high-end segments and property prices continuously rising.

The institute said when the property market recovered, the Government should readjust its existing policies that were encouraging lending on the real estate market.

The institute also said the central bank should float the deposit interest rate based on market conditions, saying that it was time for a floating rate thanks to a stable financial market.

"Keeping the interest rate cap for dong deposits under six months at 5.5 per cent per year, as is currently done, makes it difficult for commercial banks to attract deposits as it pushes the saving source to other asset markets with higher profit expectations," the institute said.

The cap also caused a rise in consumption and an imbalance in the capital market, it said.

As for the forex market, the institute said the central bank should adopt a more flexible exchange rate mechanism to be able to protect the country's macroeconomic stability and domestic production, especially in case Viet Nam saw an overheating capital inflow to the country after the signing of the Trans-Pacific Partnership (TPP), of which Viet Nam is a member. That had happened earlier when Viet Nam joined the World Trade Organisation (WTO) in 2007.

A more flexible forex policy would also help the country against volatility that might be caused by strong adjustment made by China and emerging markets, the institute said. — VNS