Monetary policy management results in first two months of 2013

10:39-01/04/2013

With the synchronous and decisive implementation of comprehensive measures since the early months of the year, developments in monetary, credit and banking operations in the first two months of 2013 have picked up in accordance with the management objectives of the whole year.

 1. Solutions in the first two months of 2013:

- Firstly, the State Bank of Vietnam (SBV) issued a Directive for the whole banking sector to implement the monetary policy and ensure safe and sound banking operations in 2013  in strict response to the direction of the Government in Resolution No. 01 / NQ-CP dated January 7,2013 on the key measures of implementating the socio-economic development plan and state budgeting of 2013, and Resolution No. 02/NQ-CP dated January 7, 2013 on solutions toease difficulties for business and production, to support the market and solve non-performing loans. Specifically, the SBV has taken the following measures: (i) to direct credit institutions to continue the credit and interest rate solutions already implemented in 2012 to ease difficulties for business and production, to support the market, and to change the credit structure in theagricultural and rural development, export, supporting industries, small and medium enterprises,and high-tech enterprises; (ii) to coordinate with the Ministry of Construction to formulate adraft circular on supportive housing loan extension in line with Resolution No. 02/NQ-CP ofthe Government; and (iii) to implement the scheme of restructuring credit institutions for the2011-2015 period, urgently complete the project of  NPLs resolution of the system of credit institutions and the plan of establishing the Vietnam Asset Management Company; strictlymanage the establishment of new credit institutions and foreign bank branches, and the more prudent expansion of their network  in order to ensure the safe and sound development of credit institutions.

- Secondly, the SBV  pursued  the monetary policy in a strict, flexible and prudent manner in close association with the fiscal policy to lower inflation, promote higher economic growth  than 2012, enhance macro-economic stability; proactively and flexibly utilize the monetary policy tools, and to ensure the growth of credit and the total liquidity at a reasonable level, therebymeeting the payment requirements of the economy; manage the interest and exchange rates in line with changes of the money market and macro-economic balances, especially inflationmovements. Accordingly, the SBV has set the targets of growth rate of about 14-16% of thetotal liquidity, and the credit growth rate  of about 12%, depending on the practical condition.In order to maintain the credit growth rate of 12% in 2013, the SBV has continued to allocate the credit growth quota for each credit institution in order to ensure qualitative and prudentcredit extension alongside with safe and sound operations of credit institutions.

- Thirdly, the SBV focused on harmonizing the cash flow in order to meet the settlement requirements during the Lunar New Year Holiday, and ensure the safety of vaulting . On the basis of the denomination structure in cash circulation, the SBV circulated cash with  areasonable structure to meet the needs of people; and the cash allocation plan for the LunarNew Year of the Snake was completed right in January. The vaulting was maintained verypromptly, thoroughly and safely  before, during and after the Lunar New Yeart Holiday.

- Fourthly, the SBV flexibly managed the money supply channels for reasonable moneycontrol. When the supply and demand of foreign currencies were improved in the downsize trend of foreign exchange hoarding, the SBV bought a large amount of foreign currencies to increase the international reserves while stabilizing the exchange rate (without appreciatingVND to cause difficulty for export); together with neutralizing the money availability to buy foreign currencies via the issuance of SBV bills in order to ease the pressure of money supplyon inflation. In addition, the SBV also recovered all the due refinancing loans.

- Fifthly, the SBV managed the monetary policy mainly through open market operations to provide supportive liquidity to credit institutions in a quick and timely manner, especially during the time approaching the Lunar New Year of Snake with traditional high demand of cash withdrawal by the State Treasury and the Social Insurance. In the first two months of the year, the SBV bid valuable papers with 7 day and 14 days term at a reasonable volume inconsistence with the liquid condition of credit institutions in order to avoid their due dates immediately after the Lunar New Year, thereby maintaining the stable market without any interest rate upheaval.

- Sixthly, in regard to the interest rate management, following the reduction of  1 percentage point p.a by the end of 2012, the SBV kept the overnight interest rate in the inter-bank electronic payment at 10% p.a, the re- financing interest rate at 9% p.a and the rediscount rate at 7% p.a. Moreover, the SBV closely monitored the compliance with the  maximum interest rates for VND deposits of organizations and individuals with credit institutions.

2. Achievements :

With the synchronous and decisive implementation of comprehensive measures right from the early months of the year, developments in monetary, credit and banking operations in the first two months of 2013 picked up in accordance with the objectives  of the whole year. 
Following are the obtained achievements :

- Capital mobilization rose again since the end of January, 2013. As of February 28, 2013,mobilized funds increased by 2% as compared to the end of 2012, a twofold increase against the first two months of 2012. The mobilizing growth rate in VND was higher than that inforeign currencies in consistence with the policy of transferring the foreign exchange mobilizing-lending relations into the trading ones and the reflection of the improved public confidence  inthe system of credit institutions.

- Credit extension was down against end 2012 as a usual annual incident, but increasedsignificantly again in February, 2013. As of February 28, 2013, credit extension was down by0.28% compared to 1.88% in the first two months of 2012. On a monthly basis, credit extension increased by 0.26% in February against a decrease of 1.23% in January. Moreover,it was positive that VND credit extension increased by 0.71% in February from a decrease of0.12% in January, 2013. The reduction of credit to the economy is entirely due to a decrease of credit in foreign currencies in line with the Government’s policy of dedollarization. As a matter of fact, the solutions to ease difficulties for production and business and to unlockcapital and credit resources under the direction of the Government obtained initial resuslts in February, 2013.

- Liquidity of the system of credit institutions was improved, even right before the Lunar New Year,  no credit institution needed refinancing from the SBV. In the first two months of the year, the VND liquidity of credit institutions was relatively stable in excess of the reserve  andsettlement requirements, the borrowing needs of commercial banks through open market operations were insignificant. The interest rates in the inter-bank market remained low and decreased slightly in comparison with the beginning of the year, the overnight interest rates arenow commonly at 2.7% -3% p.a; 3-3.5% p.a for 1 week , 3.5% -4% p.a for 2 weeks, and4.5 - 5% p.a for 1 month. At the beginning of February, due to increased demand of paymentduring the Lunar New Year, the liquidity of credit institutions decreased and in a short time,making the interbank market interest rate increase by 2-3% p.a, but the liquidity was improved quickly after the SBV actively used open market operations to meet the seasonal capital needs of credit institutions.

- The market  interest rates continued to be stable, even right before the Lunar New Year. Currently, the mobilizing rates of credit institutions are commonly  1-2% p.a for demand and below 1 month deposits, 7.8-8% p.a for 1 to 12 month deposits, and 10-11% p.a for over 12 month deposits. The lending rates were stable as compared to end  2012, the lending  rates in VND for agricultural and rural development, exporters, small and medium enterprises, supporting industries, high-tech enterprises are 9-12% p.a (several commercial banks are charging interest rate of below 9% p.a for the exporters with commitments to sell foreign currencies to these banks); the short-term lending rates for other production and business are11-15% p.a.

- The foreign exchange market and the exchange rate positively developed, although fluctuation took place for a short time after the Lunar New Year mainly due to psychological factors, butbecame quickly stable thanks to the SBV measures.

Developments in the macroeconomy and monetary policy are in the right direction of theGovernment without any abnormal happening. The arising issues in macroeconomic management as well as monetary policy are now just continue implementing measures to easedifficulties for production and business, solving NPLs, and supporting the real estate market , while keeping inflation rate lower  than that of 2012 in the context that inflation rate of the first two months reached 2,59%. Therefore, consensus and close coordination are required in macro-economic management and price and market control in order to avoid an increasingpressure on inflation as in the past.

In the following months of 2013, in response to the direction of the National Assembly, and the Government, and in implementing the key tasks in Directive 01/CT-NHNN, the SBV willcontinue to manage the monetary policy in a prudent and flexible manner in close association with the fiscal policy to lower inflation, and improve economic growth as compared to 2012,enhance macroeconomic stability; proactively and flexibly utilize the monetary policy tools toensure credit growth, the total liquidity and  the payment requirements of the economy; to manage the interest and exchange rates in line with the monetary movements and macro-economic balances, especially inflation. It is necessary to take decisive measures to easedifficulties for production and business, support the market, and solve NPLs in the direction of the Government in Resolution No. 02/NQ-CP; to carry out the solutions of restructuring the banking sector under the direction of the Prime Minister in Decision No. 254/QD-TTg dated March 1, 2012 and the Action Plan on implementing the Plan of restructuring the system of credit institutions  for the 2011-2015 period.

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