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Prime Minister Orders Tight Lid on Credit   2008-05-21 -

Prime Minister Nguyen Tan Dung on May 20 ordered the State Bank of Vietnam to continue keeping a tight lid on the growth of credit while monitoring the market in a parallel attempt to tame inflation.

Dung told the State Bank of Vietnam to manage interest rates and to finalize a new interest rate regulating mechanism to replace ceiling rates. The new rates must be in line with existing laws and with reality, with the aim of gradually stabilizing market rates.

The central bank was asked to create favorable conditions for commercial banks to borrow on the inter-bank market and to join open market operations in order to ensure strong liquidity.

Total growth in credit was targeted at about 30% per year.

The central bank was also tasked to closely monitor the business of commercial banks in terms of capital adequacy ratio, risk management, real estate and stock lending in order to put the brakes on unstable, overheated development.

The State Bank will control the increase of charter capital by commercial banks to make sure that each bank is growing sustainably.

Dung also reaffirmed that, in the coming months, the central bank would manage exchange rates flexibly within a daily trading band, and that the Vietnamese dong would continue to be limited to movements within plus-or-minus 2% against the US dollar.

The central bank will strictly control foreign currency demand and balance of payments in order to respond to any problem in a timely manner.

The State Bank, together with the General Statistics Office, the National Financial Monitoring Council, Deposit Insurance of Vietnam and Vietnam Banks Association, would also set up an information system and forecasting mechanism to help adjust policies in a timely fashion.

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