Market prices going down
Experts from the Domestic Market Management Group attributes the fall in the domestic CPI to the downward trend of the global market in the first quarter, with light crude oil down by 57 percent, petrol A92 by 54 percent, kerosene by 61 percent, diesel by 62 percent, fertilisers by 30-35 percent, steel ingots by 59 percent and 5-percent broken rice by 23-26 percent.

According to the General Statistics Office, most major groups of commodities had a lower CPI than those recorded in the same period last year. Food and food services rose by just 1.6 percent (compared to 14.45 percent of last year’), garments and footwear 2.1 percent, and housing and building materials 2.68 percent. Noteworthy is that transport and postal services plunged by more than 4 percent due to low petrol prices and fierce competition.

Monetary policy loosened
The financial and monetary market was adjusted towards reducing capital costs, increasing businesses’ access to capital and adjusting flexible exchange rates to boost exports.

To support growth and curb the economic slowdown, the Government decided to loosen its monetary policy and offer subsidised interest rates to businesses in difficulty. The central bank then lowered the prime interest rate several times to 7 percent and the compulsory deposit reserves of commercial banks to 1-3 percent at present.

Commercial banks also lowered their lending rates to attract clients and raised deposit rates to 7-8.7 percent per year to mobilise capital.

The exchange rate between the US dollar and the Vietnamese Dong almost remained unchanged. After the central bank eased the trading band of the US dollar against the VND from 3 to 5 percent on March 24, the exchange rate fluctuated slightly on the black market but returned to normal shortly afterwards.

By March 14, the commercial banks had disbursed more than VND144 trillion in subsidised loans to businesses to help them to maintain production and boost exports.

Nguyen Danh Trong, deputy head of the Monetary Policy Department under the State Bank of Vietnam, says that loosing the monetary policy means that inflation could return at any time. To minimise any negative impact on the national economy, he says that the financial and monetary policy should be regulated flexibly.

A gloomy picture    
Normally, purchasing power increases dramatically in the first quarter of the year, especially to meet the high consumer demand during the traditional lunar New Year (Tet) holiday. However, it was not as high as in previous years due to current economic difficulties and people’s low incomes.

After the week-long holiday, the Government asked all ministries and localities to go ahead with the government’s economic and investment stimulus package. As a result, market prices gradually rallied but at a low level. Total retail and service revenues in March reached VND88.5 trillion, up 1.8 percent against February. However, the figure for the whole quarter (VND270 trillion) was still lower than that of a year ago.

Experts also express concerns about the fall in exports. Vietnam earned nearly US$13.5 billion from exports in the past three months, a year-on-year increase of 2.8 percent. However, the export earnings of most staples actually dropped by 10-30 percent.

With low domestic consumption and a drop in exports, supply is outstripping demand. Many businesses have a great deal of commodities in stock, putting them under pressure to reduce prices.   

According to Mr Trong, many countries have adopted policies to expand their domestic markets and boost exports, especially for commodities already in stock. Vietnam has developed a similar scheme, but it is slow going.

He suggests that the Prime Minister come up with urgent solutions to expand the domestic market and introduce technical barriers to stop the import of low-price products.