Vietnam’s economy is really short of cash in circulation and for payment, said Tran Hoang Ngan, member of the National Financial and Monetary Policy Consultancy Council, said in an interview with the Lao Dong newspaper.
After one week of boosting the base interest rate to 12 per cent from 8.75 per cent, deposits in commercial banks increases, but not much, he said.
People do not deposit money at banks because their spending is increasing, following the rising inflation. Meanwhile, economic organizations reduce their deposits because they need money for investment but they find hard to borrow from banks due to tight monetary policy.
“The economy really lacks money for circulation and payment, especially money for production and export,” Ngan said.
Banks’ outstanding loans were falling in May due to the reduction of deposits.
Central bank should loosen monetary policy soon by reducing reserves to 8 per cent-9 per cent from current 11 per cent, Ngan proposed.
”The increase of money supply, but with control, will not push up inflation. Furthermore, the current price level also requires more cash in circulation.”
The tight monetary policy, if prolonged, will narrow production of many industries due to of cash shortage, leading to shortage of goods and then Vietnam will not meet the economic growth target.
Central bank should apply rediscount and refinance tools more flexibly to avoid high interest rate shocks in the inter-bank market resulted from capital shortage in several banks, Ngan said. (Vietnam Women, Labor)
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