IMF Staff Country Reports

This Selected Issues paper overviews the different tools employed by the State Bank of Vietnam (SBV) and empirically analyzes the monetary policy transmission mechanism, comparing the effects from different SBV rate shocks. The results presented in this chapter indicate that the monetary policy’s interest rate channel affects main financial variables, but there are other factors in the transmission that curtail its effectiveness. In contrast, the transmission to inflation or industrial production is found to be generally weak, with only the combined repo/SBV bill rates generating a statistically significant effect. These findings stress the importance of modernizing SBV’s monetary policy framework to strengthen its transmission mechanism and better achieve its goals. Most central banks usually have one main policy rate employed to achieve one main objective and conduct open market operations to make the policy rate effective throughout the economy. Achieving this, along with a clear communication strategy that it is easy to understand would supply the SBV with a stronger monetary policy framework and greater ability to weather future eventual shocks.