In 2015, the Vietnamese government pursued a proactive and flexible monetary policy to stabilize the Vietnamese dong and the macro-economy as well as to achieve socio-economic development targets. This year, Vietnam achieved positive results concerning payment, interest rates, and exchange rates.

Monetary policy was strictly and flexibly implemented

In 2015, the State Bank of Vietnam implemented a flexible adjustment of exchange rates. This year, exchange rates fluctuated drastically following the devaluation of the Chinese yuan and the US Federal Reserve’s raising the interest rate of the USD. One day after the Chinese yuan was devalued on August 11, Vietnam adjusted the VND/USD exchange rate margin from 1% to 2%. One week later, to regulate the market and reduce negative impacts of the FED’s possible increase of interest rates, on August 19, Vietnam adjusted the average inter-bank VN/USD exchange rate 1% and expanded the exchange rate margin to 3%. As a result, exchange rates and the forex market were stabilized.

Vietnam’s gold market remained stable reflecting the effectiveness of the market management solutions of the State Bank of Vietnam. Efforts to deal with bad debts have proved successful. The bad debt ratio of the Vietnamese banking system slid to 2.72% at the end of November 2015.

In 2015 credit growth reached 18%, with the money supply increasing 13.55% as of December 21 and deposits rising 13.59%, enabling credit institutions to provide credit capital for the economy. The average interest rate was reduced about 0.2-0.5% per year, supporting business production and ensuring stability in the currency and foreign exchange market. Huynh Van Tiep is a National Assembly deputy for Can Tho city: “The State Bank managed to ensure the stability of the gold market and the interest rates. The exchange rates were stabilized and foreign currency reserves and credit growth increased, helping to stabilize and promote business and production activities”.

Contributing to macro-economic stability

Success in implementing the monetary policy helped Vietnam stabilize its macro-economy, control inflation - CPI increased 0.63%, the lowest rate since 2002 - and achieve economic growth of more than 6.5%. The tight but flexible monetary policy contributed to achieving the targets of macro-economic stability, shifting the growth model, and improving investment effectiveness and productivity. Doctor Nguyen Tri Hue, a Banking Finance expert, says: “The State Bank of Vietnam managed to maintain a low inflation rate this year. This is a great achievement. Effectively controlling inflation will promote economic growth. I believe the State Bank of Vietnam will have more programs and plans to promote economic growth and control inflation in the near future”.

Creating prerequisites for further growth in 2016

Vietnam is likely to face three major challenges in implementing its monetary policy next year: capital pressure, exchange rate management, and the bond market’s impact on interest rates. In 2016, the State Bank of Vietnam plans to strengthen its management of the forex and gold market to prevent the dollarization of export payments and promote e-payments. These solutions aim at realizing the National Assembly’s target of keeping inflation below 5% and achieving an economic growth rate of 6.7%. Deputy Governor of the State bank of Vietnam Nguyen Thi Hong said: “We will closely follow market developments, strengthen inflation control and mobilize all necessary tools and solutions to ensure macro-economic stability. Because Vietnam has signed several trade agreements, the Banking sector will support enterprises’ integration by expanding financial services”.

In 2015, the success of the monetary policy contributed greatly to Vietnam’s economic growth and created a momentum for Vietnam to achieve more sustainable growth next year.