Yearly growth targets well within reach

Monetary expansion will be needed to spur further economic growth

According to the State Bank’s report released last week, the banking system’s credit growth in the first half of the year should reach 9.4 - 10 per cent, less than half of the annual target of 25 per cent.

Le Dang Doanh, an independent economist, said that low credit growth might hold down gross domestic product (GDP) growth in the second half of the year. “Slow credit expansion, on the other hand, is keeping inflation well under control,” said Doanh.

According to a government report, GDP growth has accelerated in the second quarter of 2010 to 6.2 - 6.4 per cent from 5.83 per cent in the first quarter.

The upward trend boosted the first-half GDP growth to around 6 - 6.1 per cent, the Planning and Investment Ministry said in the report. Last year, the economy grew by 5.32 per cent. Last week, General Statistics Office (GSO) estimated that year-on-year consumer price index (CPI) reached 8.69 per cent by end of June 2010.

Alan Pham, chief economist of Vinasecurities said that the full year goal of 6.5 per cent GDP growth is within reach while the CPI print had likely peaked in February and would be trending down for the rest of 2010.

“The inflation target of 8 per cent is not entirely out of reach. We think that the State Bank has kept credit growth and monetary supply (M2) well within the 25 per cent and 20 per cent limit, respectively.

This leaves room for credit expansion later this year as economic activities historically tend to pick up in the fourth quarter, and credit along with it. Thus a cautious credit policy in the first half is appropriate,” said Pham.

Last week, the State Bank decided to keep the base rate unchanged at 8 per cent per year in July, the eighth consecutive month. The authority also keeps refinancing and overnight rates at 8 per cent per year while maintaining rediscount rate at 6 per cent per year.

Earlier this month, the National Assembly passed the new State Bank Law in which the base rate would be formed on market actual trading rate. Thus, from January 1, 2011, the banking authority would no longer announce monthly base rate like it has done for years.

At the moment, local banks are offering deposit rates around 11-11.5 per cent per year while lending interest rates at 13-14.5 per cent per year.