Cautious rate rise on cards

The announcement dispels doubts that the government will ease monetary policy which could blow up already high inflation rates.

“The government determines to cap the credit growth this year at 20 per cent and money supply growth at 16 per cent in accordance with Resolution 11,” said Vu Duc Dam, Government Office chairman.

If necessary, Dam added, the government could keep credit growth this year much lower than the 20 per cent cap to rein in skyrocketing inflation.

According to General Statistics Office, consumer price index till the end of August rose 15.68 per cent against December 2010, or 23.02 per cent year-on-year. The State Bank last week announced commercial banks should lower lending interest rates to 17-19 per cent, from 21-25 per cent, per year.

State Bank Governor Nguyen Van Binh said lower lending interest rates were favoured because “it is appropriate to current economic situation and also the inflation slowdown trend”.

“There have been comments that a lower interest rate, in associated with big room for credit growth in next month, is opposite to government’s inflation curbing policy. We are still determining to implement a tightened monetary policy,” Binh said.

The governor’s statement means many local enterprises will still face difficulties in accessing bank loans even when interest rates reduce.

“Due to the credit growth and money supply limitations, not every enterprise can access loans. Commercial banks have to choose their customers carefully,” said Dam.

The high lending interest rates and limited money supply have been affecting domestic production. The index of industrial production in the first eight months this year rose 7.3 per cent year-on-year, a level that the MPI said was modest. Meanwhile, total retail turnover surged 22.2 per cent at the same time, but if excluding price hike factor retail turnover increased only 6 per cent.

Dam said the government remained putting inflation curbing on top priority against growth target, adding that the economic growth this year is expected to bet at around 6 per cent against last year.