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FMT - Inflation in Vietnam

FMT presentation
by

Linh Le Phuong

on 23 October 2013

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Transcript of FMT - Inflation in Vietnam

CONTENTS
Vietnam's inflation determinants
Forecast the trend of inflation in Vietnam next year
Current situation
Tutor:


Ms. Dao Mai Huong

Money and Inflation in Vietnam
Group 9:
Le Phuong Linh - 0907010131
Nguyen Thi Nhan - 0907010169
Tran Hoang My - 0907010149
Tran Thi Thien - 0907010210
Do Mai Huong - 0907010099

Tut:
3AC10

1.
Inflation rates
of Vietnam
for the last
10 years
- My
Nhan
2.
Causes of
inflation
in Vietnam
Prove that "Inflation is a monetary
phenomenon"
Linh
3.
Forecast the
trend of inflation
in Vietnam
next year
Analyze how this forecast would affect the banking industry
Vietnam’s inflation rate
target in 2013:
7-8%
Forecast inflation rates
9.3%
,
double-digit level
in the second half of 2013
10.8%
9.7%
;
11-12%
in the first
six months of 2013
CPI
Why inflation rate is forecast to increase in 2013?
AD =
C
+
I
+ G + NX
Money Supply
Aggregate
Demand
From July 1st 2013, the base salary will increase
by
100,000 VND
to
1,105,000 VND
more income
consumer expenditures
government bailout
tax payment delay
tax reduction
lending rates reduction
planned investment spending
2008 – 2012:
2.7%
of GDP
2003 – 2007:
only
1.3%
of GDP
Government
budget deficit
food &
beverages
medical
care
other goods
and services
housing
apparel
transportation
recreation
education
&
communi-
-cation
CPI
Medicine and healthcare services prices
Aggregate Demand & Supply Analysis
Aggregate Supply
Expected
price level
Wages
&
Production cost
tightness of
labor market
Aggregate
demand
Net export - exchange rate
Ineffective fiscal & monetary policies
Effects on
banking industry
Difficulties in
deposits mobilization
Fewer investment
opportunities
Expected
inflation
Deposit
interest rates
VND depreciates
price of gold and foreign currency
Expectation on inflation
" 1% of last-year inflation
raises

0.63%
point of this-year inflation"
wages decrease in real term
Cost-push inflation
Make loans to limited investment projects
Bad debts risk
Yn below natural level
=>

High unemployment!!!!!
Lower profitability
High credit risk
Gov policies
High liquidity risk
High interest rates risk
AD = C +
I + G
+
NX
Loosen fiscal & monetary policies



increase in investment

increase in Gov's budget

M2 increase

money supply rise


INFLATION!!!
Joined WTO (2006)
2002
2007
2008
2010
2011
Vietnam's money growth 2002 - 2012
FDI, FII
Large public investment
Compensate for
ineffective SOEs' projects
Jan - June / 2008
July - Dec / 2008
Tightened
monetary policies
Loosen
fiscal policies
Limited money supply
Loosen
monetary policy
Loosen
fiscal policy
Accelerate money supply
ASSETS
Seek for high GDP
LIABILITIES
High investment
High money growth
in Vietnam
in other countries
Exchange rate
SBV control ER
ER controlled by market demand & supply
Nominal & real exchange rate in Vietnam
Cope with real appreciation of VND
Increase net export
(Export-import)
SBV continuously increase the
official exchange rate
USD credit increase
+
High inflows of USD
=
Excess supply of USD
SBV USE VND TO STABILIZE EXCHANGE RATE!
EXPECTATION ON INFLATION
FISCAL & MONETARY
POLICIES
EXCHANGE RATE
MONEY GROWTH
"Inflation is always and everywhere a monetary phenomenon"
(Milton Friedman)
Inflation rates of Vietnam
for the last 10 years


hard to attract
long-term deposits
“a cost-push inflation, causing by expectation on inflation is a monetary phenomenon because it cannot occur without the monetary authorities pursuing an accommodating policy of a higher rate of money growth”
(Frederic, S.M., ).
REFERENCES
Frederic, S.M. Money, Banking and Financial Market (8th ed.). New York: Pearson.

Hang, N.T.T (2011) Exchange rate in Vietnam: Trends and management. Retrieved November 30th from: vie.org.vn/userfiles/file/VSED67/2-NTTHang-Exchange%20rate.pdf

Inflation, consumer price (annual %). Retrieved on 1st December, 2012 from the website:
http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG/countries?page=1

Intellasia. (2012a). HSBC forecasts Vietnam’s inflation to be around 7-8pct in 2013. Retrieved December 1, 2012, from http://www.intellasia.net/hsbc-forecasts-vietnams-inflation-to-be-around-7-8pct-in-2013-244705

Intellasia. (2012b). ANZ: Vietnam can achieve growth rate of 5.9pct in Q4. Retrieved December 1, 2012, from http://www.intellasia.net/anz-vietnam-can-achieve-growth-rate-of-5-9pct-in-q4-247537

Intellasia. (2012c). JPMorgan: Monetary policy in 2013 likely to remain unchanged. Retrieved December 1, 2012, from http://www.intellasia.net/jpmorgan-monetary-policy-in-2013-likely-to-remain-unchanged-250442

Intellasia. (2012d). Vietnam suffers from increasing state budget deficit for more than a decade. Retrieved December 1, 2012, from http://www.intelasia.net/vietnam-suffers-from-increasing-state-budget-deficit-for-more-than-a-decade-231307

Monetary policy main cause of inflation: gov’t. (2011). Retrieved 29th November, 2012, from http://www.thanhniennews.com/2010/pages/20110930-monetary-policy-causes-vietnam-inflation.aspx

Monetary policy largely affects 2011 inflation: SBV governor. (2012). Retrieved 3rd December, 2012, from http://qdnd.vn/qdndsite/en-US/75/72/182/155/160/172936/Default.aspx
CPI (%)
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