Vietnam central bank chief looks to stay on sustainable path

Q: What are the key objectives for the Vietnamese central bank for the country, and how do these contribute to national development?

A: Apart from monetary policy and controlling inflation to stabilise the currency valuation, we also have the mandate to ensure the safety of the banking system. The State Bank of Vietnam [central bank] is part of the government, so we also have the task of contributing to the social and economic development of the country. 

Since 2002, interest rates have been liberalised in Vietnam, meaning that clients and banks or other credit institutions can freely negotiate... interest on deposits or lending between them. A ceiling on interest rates is only applicable in very special situations. On foreign exchange rates, the Vietnamese economy is largely open, so the exchange rate is critical for our country.

Q: Not long ago, Vietnam was battling high inflation rates. Those rates have now been brought down. What lessons were learned?

A: We have achieved several important results. The first is that inflation has been in check, at about 4% for a couple of years now. Ten years ago we had 18% or 20% (or even higher) inflation rates. The second achievement is that the current account is in surplus and hopefully it is going to continue on a sustainable path. 

Next, we have had the chance to increase our foreign exchange reserves over the past couple of years. Finally, we have upgraded the sovereign rating for Vietnam, especially for 2018.

We have previously experienced a high inflation period. [We] discovered that credit growth for several years in a row was one of the key drivers of inflation. That’s why we applied a credit ceiling for the whole system and for each of the individual credit institutions. In 2017 we had a target of 18% credit growth for the entire banking sector, with each institution assigned an individual limit. In 2018 we have tried to reduce it a little further by targeting 17%.

Q: There is currently a lot of tension and uncertainty in international markets, not least because of the US-China trade war. What challenges do you see ahead?

A: We see challenges ahead both from external factors and also internally. [Regarding] external ones, the rise of commodity prices is a threat for the Vietnamese economy because we rely heavily on imports. We also see [monetary] tightening globally, especially for advanced economies as they go back to the normalisation of their monetary policy. Even though the Vietnamese market still has capital inflows for the year to date, the uncertainty of capital inflows around the region and the world is one of the uncertainties we have to watch closely. And, of course, people are talking about the tensions and trade war between the US and China, and as an open economy we have to take that into account.

Internally, the financial markets are still under development, so further [work] needs to be done to enhance capacity – for market participants as well. Restructuring and non-performing loan resolutions are still major tasks for the central bank. We also still have work to do on commodity price controls – that is one of the threats and challenges we need to take on step by step in order liberalise prices.

Q: What kinds of inflationary pressures do you see ahead and how will the central bank react?

A: Prices have fallen for the past few years now, and for 2018 the National Assembly decided that we [will] target in the range of 4% inflation. The year-to-date figures are quite encouraging – we are quite confident we can achieve that goal for this year. Going forward, we still have some challenges to face and uncertainty internally but especially externally, and we will still stick to the target of 4% in 2019. Further than that, we will try to slow inflation rates even further in 2020 and beyond.