“Vietnam Can Control Exchange Rate”

Ashok Sud, Chief Executive for Standard Chartered Bank in Vietnam, Laos and Cambodia, said Vietnam should continue to tighten monetary policies in 2010 to reduce inflation pressures when he remarked on Vietnam’s economy at a talk with Vietnam Business Forum.

Could you share your viewpoints on global economic prospects in 2010?

The world economic outlook in 2010 is quite bright but also there are still many challenges confronting governments, policymakers and businesses. The world economic prospect will depend largely on performances of developed economies such as the United States, Europe and Japan, and on actions of consumers because developed economies make up two thirds of total global GDP, estimated at US$61,000 billion in 2009, and consumer purchasing power has no signs of sustainable recovery, and this is especially important for exporting companies in Asia.

The second aspect originates from Asian economies where economic growth in four countries of China, India, Indonesia and Vietnam are very positive. The recovery was driven up “domestic consumption” and the effectiveness of economic stimulus packages that most Asian governments launched in 2009.

However, stimulus packages in addition to loose monetary policies in many Asian countries have led to “asset bubble”, particularly in the real estate and stock markets. Therefore, 2010 will continue to be a challenging year.

We predict the world economy will grow at 2.7 % in 2010 after shrinking 1.9 % in 2009. Growth rate in Asia will reach 7 % in 2010, compared with 4.5 % in 2009. Inflation is highly likely to be low in Western economies but in some emerging markets where prices are increasing dramatically central banks should tighten monetary policies to control inflation.

How can Vietnam have a strong exchange rate policy?

The first reason is the overall balance of payments in Vietnam is basically good and stable. The second is that Vietnam was not affected by large two-way capital flow, investments and loans in US dollars. Over 80 % of loans in US dollars by the Government and the private sector in Vietnam mobilised from foreign resources are long-termed; thus, capital flow does not easily melt down. Meanwhile, foreign investments in Vietnamese bonds and stocks are very modest in relation with other countries and thus risk ratio of capital outflow is also very low.

In short, I believe that the Government of Vietnam can completely control exchange rate movements in any direction as part of monetary policy measures. We see a stable future for the Vietnamese dong after depreciating 9 % in 2008 and approximately 6 % in 2009 to increase competitiveness for exports in 2009. I also want to emphasise that, during this period, all other major currencies has gained against the US dollar. So, I completely support the need to uphold the stability for the Vietnamese dong in the future.

What do you forecast about the monetary policy of Vietnam in 2010?

First, as I said, we expect a stable exchange rate policy and the minimum depreciation in VND, if any, because it is not justified that it helps the competitiveness of exports and Vietnam has sufficient reserves to control the situation.

One of risks that Asian countries, including Vietnam, will face in 2010 is inflation affected by two factors. The first is the increasing global prices of commodities like oil, metal and food, etc. as we saw in the last six months of 2009. Secondly, besides positive aspects of economic stimulus packages that most countries launched in 2009 also created “asset bubble”, especially in real estate and stock markets. To solve these problems, Vietnam may need to continue tightening monetary policy in 2010.

Posted by VBN on Jan 26 2010. Filed under Banking-Finance. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry