There was a cross-cutting concern in the international financial markets in 2020, which is "cheap money" resulted from massive support packages pumped by central banks of countries. This may create "asset bubble". From the 17th-century tulip mania to the dotcom of the 1990s, the world has witnessed a lot of consequences when these bubbles “deflated”.
In Vietnam, in the past months, the prices of many types of assets have risen, and capital flows have been rushing into real estate, stocks, and gold. This may lead to the formation of asset bubbles, according to many economic experts.
Dr. Quach Manh Hao, Banking - Finance Associate Professor, founder of the Vietnam - United Kingdom Policy and Economic Research at Lincoln, said that loose monetary policy to stimulate economic growth is completely appropriate.
However, the expert said that it is very important to note that monetary loosening is often effective in normal conditions when the liquidity in the banking system is not good, leading to high capital costs and discouraging investment in production and consumption. In this case, expansionary monetary policy and low interest rates will help solve this problem, and stimulate consumer demand and investment, leading to economic growth.
Yet in the context of an economy that is disrupted by disease instead of lack of liquidity (lack of money), the application of loose monetary policy requires more consideration.
"The overuse of supportive packages and policies may lead to an asset bubble due to a short-term shift of cash flow from production to risky assets" Hao said.
Also, according to Mr. Hao, many people argue that the whole world is doing so and that makes it normal. However, they purposely did not talk about the other side of the coin, which is the fact that that economies around the world have the same worry about asset bubble. Therefore, policy risk warnings are never redundant.
"The economy cannot grow if everyone looks at the “electricity board” (at stock exchanges) day by day. In order for 5% of the population having investment accounts in 2025, sustainable development is very necessary." Mr. Hao noted.
Associate Professor. Dinh Trong Thinh - Finance Academy is also concerned about asset bubble. "If you look at the real estate market, prices have risen sharply even when the market is extremely gloomy…" Mr. Thinh worried.
This expert also said that many people who do not know where to invest have poured money into the real estate market and waited for the price to rise. Currently, many organizations have confirmed that there are no bubbles, but the concern is real.
"Some experts believe that the market only regains what it has lost, but in fact, everything has two sides. If the growth is too hot, it is easy to create bubbles. Value of stocks cannot rise so fast in in a short amount of time. I hope that the state management agencies will have a closer look to avoid bubbles in these two markets. The increase is good, but it needs monitoring." said Mr. Thinh.
According to Mr. Thinh, there are many problems surrounding interest rate management. Low interest rates to stimulate economic growth and support businesses are essential, however, the formation of asset bubbles should also be paid attention to.
"However, I believe that maintaining this low interest rate will not last long. Our economy is recovering, the demand for capital is very large. If banks want to meet capital needs, interest rates will have to increase. I expect the interest rates to increase from the end of Q1 / 2021. It is very difficult to keep interest rates low at this level." said Mr. Thinh.
Experts from VEPR (Vietnam Institute for Economic & Policy Research) also said that monetary policy, particularly interest rate tool will witness a significant reduction in efficiency in 2021. In particular, it should be noted that the asset bubble is forming on the stock market and the real estate market.
In fact, in 2020, property markets have seen significant growth, mainly because they are refuge for the idle money of investors and households. This is understandable during a period of crisis. However, the continuous lowering of deposit interest rates due to the decline in credit demand is pushing the flow of savings out of banks faster and faster.
In addition, VEPR said that when the increase of prices on the asset markets is large enough to create the wealth effect, consumption will increase for non-essential goods. This may lead to the rise in prices on the consumer market, albeit slow, but perceptible. This is also a manifestation of the price increase phenomenon when the loose monetary policy is pursued for a long enough time.
VEPR believes that this is a difficult time for monetary policy as there have no fundamental improvement in production activities, which will cause further difficulties for manufacturing businesses. In any case, macroeconomic stability (stable inflation, interest rates and exchange rates) is essential to prepare for a post-epidemic recovery.