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Inflation in Vietnam
(from 1995 to 2014)
Tutor : Le Thu Trang
Group 5: Nguyen Thi Duyen
Nguyen Thi Thuy Linh
Ta Thi Kieu Oanh
Nguyen Minh Tuyen
Class:
4TC-13

Contents

Inflation overview

The causes of Inflation

The effects to Vietnams economy

Policies to deal with inflation in Vietnam

I. Inflation overview
1. Definition:
Inlfation: An increase in the overall level of prices in
the economy

I. Inflation overview
2. Measurement
Measurement

Consumer Price Index

CPI

GDP deflator

I. Inflation overview

2. Measurement
a. CPI Consumer Price Index
CPI = 100
Inflation rate in year 2 = 100

I. Inflation overview

b. GDP deflator
GDP deflator

100

Inflation rate in year 2= 100

I. Inflation overview

Severe economic crisis

1000%/year
10%/year

Hyperinflation

Economic downturn
Chronic Inflation

1-4%/year

Economic growth stimulation

Creeping Inflation

I. Inflation overview
3. Inflation in Vietnam

II. The causes of Inflation

1. Cost-push.
. Increasing cost of the factors of production
In Vietnam: large pool of underemployment in
agriculture sector -> the price of labor extremely
cheap (unskilled labor)

II. The causes of Inflation

2. Demand-pull
Excess demand for goods and services
Vietnam has too little suitable high technology factories
and labors.

III. The effects to Vietnams economy

Positive impact

Negative impact

III. The effects to Vietnams economy

Positive impact
1. Inflation is likely a lubricant in the Vietnam
economy
.more money circulating
.more liquid
2. No Deflation
deflations harmfulness

III. The effects to Vietnams economy

Negative impact:
The higher inflation rate, the more serious the
problem it is
The poor are impacted immediately
To rein in the money supply
raise interest
rates
hurt stocks

4.Monetary Policy

Include:

- Direct tools:
* Credit control
* Interest rate control
- Indirect tools:
* Discount rate
* Open market operation
* Reserve requirement

Definition:
- Conducted by the central bank
- Management of money supply
and interest rate

Objectives :

4. Monetary Policy
Indirect tools
1. Reserve requirement
The amount of money to be deposit
at the central bank by credit
institutions
Money multiplier M=1/R
In Viet Nam:
RR applied in 1991
Initial, reserve ratio
was 10%

RR

MS

MS

4. Monetary Policy
Indirect tools
2. Discount rate :
Interest rate that the central bank makes to commercial
bank
Used to prevent the financial panics

Discount rate
Encourage bank from
borrowing
Money supply
Interest rate

In Vietnam, initially, SBV just made short-term loans

based on credit contract

4. Monetary Policy
Indirect tools
3.Open market operation:
The operations of purchase and
sale of short-term valuable paper
Open market purchase for MS
Open market sale for MS
This tool is used most often by SBV
Easy and quick to conduct
Flexible and precise
Not need change law or bank
regulation

IV. Monetary policy

Direct tools

Interest rate tool

Credit tool
Use credit limit to control
the amount of credit of
commercial bank in the
permit amount

If inflation rate is high

Interest ratell
i rise
People tend to saving
Money demand reduces
A fall in inflation

4. Monetary Policy
The relationship between monetary policy and inflation

4. Monetary Policy
The application of monetary policy in Vietnam
Tight monetary
policy
2006-2010
1995-2000
liberalization of
interest rate
In 1999, interest
Inflation rate
rate reduced to
15.00%
0.1%
To encourage
10.00%
2001-2005
2011Now
the economic
growth: RR
5.00%
from 7% to 5%
On July 12,
0.00%
2000, OMO has
1995 1996 1997 1998 1999 2000 operated formally
-5.00%

4. Monetary policy
The application of monetary policy in Vietnam
2001-2005

Inflation rate
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2001

2002

2003

2004

2005

From
2001,using
loose monetary
policy, interest
tool,credit tool
to reduce
deflation
In 2004,
Inflation to
9.5% suddently
OMO used as
a primarily tool
In 2005 ,
interest rate 3
times

4.Monetary policy
The application of monetary policy in Vietnam
2006-2010

Inflation rate
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2006

2007

2008

2009

2010

In 2007 ,SBV
changed from
buying to
mainly selling
G bond
In 2009, tight
monetary
policy but
flexibility in
operation :
Discount rate
from 13% to
9%, RR from
11% to 6%

4. Monetary policy
The application of monetary policy in Vietnam
2010 to now
Tight monetary
policy to
control inflation
Interest rate
ceiling from
14%(2011) to
5.5%(2015)
In 2014
,inflation rate
was acceptable
(4.09%)

Inflation rate
20.00%
15.00%
10.00%
5.00%
0.00%
2011

2012

2013

2014

4. Monetary policy
The application of monetary policy in Vietnam
Comments
.

Combine and apply a lot of

monetary policy together

Set to many objectives in each

period. Some objectives is not
realistic

The management structure still

is weak
So the effect of monetary
policy is still unclear

LOGO

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