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CPI decline has pros and cons

Update: April, 03/2014 - 08:42
Cao Sy Kiem
The country's consumer price index (CPI) in March dropped 0.44 per cent against the previous month, the lowest level recorded during the past decade.

Cao Sy Kiem, the former Governor of State Bank of Viet Nam tells Viet Nam News about the issue.

Could you clarify the reasons for the sharp decrease of the country's CPI in the past few months of the year?

The sharp decrease can be attributed to three main reasons. Firstly, the Government has been active in curbing inflation, thus ensuring that all decreasing or increasing indices were under control. Secondly, goods consumption has been at a low level due to decreasing purchasing demand while production has been in a state of stagnancy. Lastly, the consumption patterns revealed the people's incomes. The lesser the people earned, the lesser goods they purchased.

However, the country's inflation rate has been still higher than other countries in the region. This is the reason why we should strive to lower the inflation rate.

How has the decreasing CPI affected the economy?

We need to evaluate the issue for both the positive and negative aspects. The positive side is that inflation leads to a fall in prices and helps to reduce production costs, thus improving the lives of the people as well as stabilising the local money value. This could create healthier factors in the economy and currency balance.

However, the sharp decrease in CPI in March showed that the purchasing power was still low, resulting in a slow recovery of production. In reality, decreasing and prolonged CPI could make inventories higher. The economy, therefore, could not escape a state of stagnancy.

Could you give a forecast for CPI this month?

CPI in the month of April will be slightly higher than the previous month due to an increase in production and business projects. Enterprise operation in the second quarter of the year will become more stable.

In addition, the capital inflows will also make business activities more vibrant.

What solutions should be taken to tackle the difficulties faced by small-and medium sized enterprises (SMEs) in the context?

SMEs would be most vulnerable to difficulties of the economy. It was the reason that the Government should adopt active measures to support the sector.

In my point of view, the Government in collaboration with banks should have policies in place to encourage investment in SMEs to encourage new businesses and improve the skills of labourers.

The solutions should facilitate them in increasing their purchasing power, thus creating higher income for labourers. SMEs need policies at par with other economic sectors. In addition, the country should rearrange the banking system in order to improve quality for attracting businesses.

Could SBV's move to lower interest rate help SMEs access loans?

The Government's target is to help businesses recover their production, reduce costs, and enhance competitiveness. One of the key solutions was to lower the interest rate.

The move will also help improve banks' liquidity as lending was limited and growth was negative in the first quarter of this year. This period can be seen as the most difficult phase for banks because of stagnancy in production, thereby leading to higher bad debts. This has resulted in decreasing profits and deterred banks from development. The lower interest rate will help the entire economy to recover faster. — VNS

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