Central bank vows to keep monetary policy stable

Central bank vows to keep monetary policy stable

The Bank of the Lao PDR has made a strong commitment to keep monetary policy stable amid rising concerns over the management of public debt.

The Executive Board of the Bank of the Lao PDR, the top policy making body of the central bank, adopted a resolution at a meeting in Vientiane last week to introduce measures to keep the inflation rate at single digit growth and below GDP growth rates.

The board meeting, which was chaired by Deputy Prime Minister, Dr Bounpone Bouttanavong also vowed to keep a foreign reserve level sufficient to secure the import of goods for about five months, one of the main conditions for the central bank to keep the currency exchange stable.

One of the significant resolutions which the central bank made during the board meeting was to maintain money supply growth at 24 percent per annum.

The supply of money plays a significant role over fluctuation of inflation. If the money supply is high, it will cause higher inflation.

Laos is facing a number of challenges to maintain macro-economic stability amid rising concerns over public debt management.

A number of commercial banks are unable to collect debts from companies who borrowed money to invest in public infrastructure under a government policy to allow private companies to invest money upfront and the government to repay the debt later on.

Currently, the government is having difficulties paying off the debt as it is unable to collect revenue in accordance with the targets set.

The economists urged the government to manage public debts carefully otherwise it could cause higher inflation rates in the country. At present, the inflation rate is about 5 to 6 percent while the GDP growth rate is projected to see 7.5 percent growth.

According to a press release from the Bank of the Lao PDR, one of the issues which is causing concern among the top central bank policy makers is the fluctuation of the oil price in local and foreign markets, as major price changes could derail the implementation of the socio-economic development plan.

Fluctuation of currency exchanges on the world market also poses a big challenge for the central bank to maintain sound monetary policy.

At the meeting, the executive board also adopted a fund to implement a number of projects which aim to improve banking infrastructure in accordance with the government policy to modernise the banking sector in Laos as well as to enhance the capacity of the central bank to supervise commercial banks in Laos.

At present, there are more than 30 commercial banks in the country. The central bank has halted granting permission to allow the establishment of new domestic commercial banks. The central bank currently only allows the establishment of foreign bank branches in Laos.

vientiane times