VNU JOURNAL OF SCIENCE, ECONOMICS-LAW, N01E, 2004 U SIN G THE IN TER EST RATE TOOL TO CONTROL INFLATION IN VIETNAM V u T h i D a u (* Inflation is considered as a phenomenon Form ula (2) shows th a t when the associating w ith the m a rk e t economy, so in estim ate d inflation r a te increases, it wil modern economic circumstances, controlling make inflation is one of the essential ta rg e ts of reflecting th e decrease in the real costs 01 each in te re sts of the people participating the nation However, how to control th e real in te re st credit from different causes and occurs in different borrowing money, b u t dam ages lending economic Therefore, social circum stances in which the is decrease inflation is not easy as inflation results an d m arket, rate beneficial d e m an d s money different in te re st te tools in controlling borrowm g money decreases, the interest inflation to gain various goals This article te grows The increase in the estim ated discusses the use of the in te re st te tool inflation r a te will re s u lt in the increase in in controlling inflation in V ietnam - based in te re st rate, which is th e effect cited bv on the economist, F ish e r an d is called Fisher successful lessons and the but th e borrowing different nations, which m akes use of the the increases, for for supply O- •effect This effect implies th a t if you fight lim itations of this tool ag ain st inflation by lowering in terest tf, The B asis o f C on trollin g Inflation by In terest Rate W ith reg ard to th e it is c ertain t h a t you will fail: the inflation will increase relationship Economists studied an d illustrated the betw een in te re st te a nd inflation, there relationship betw een inflation te and have been m any research works and a in te re st sh a re d admission is th a t they are closely countries including Italy, France, C anada, related The economist, F isher described Holland, J a p a n , a n equation: Brussels in th e period of 1982 and te in th e nine developed G erm any, Switzerland, 1983 i = ir + n * (1) -> ir = i - n e (2) relationship i = in te re st inflation The ir: real in te re st countries which n e : estim ated inflation te inflation te are the ones which have hib'h (This is an in te rn a tio n a l research on the betw een in te re st te re sea rc h shows experience the and th a t hi£ib in te re st rates T h ree nation s which have th e n Faculty o f Economics, Vietnam National University, Hanoi 53 high est inflation te s are Italy Vu Thi Dau Fnce and C a n a d a a n d they are tfee nations th e in te re s t r a te in re a lity is considered as th e solution of m any nations, lirtst rates; four n a tio n s w hich have low including developing nations Since 1983, in to n controlling a re have of raisin g highest te which also Japan, G erm any, the in te r e s t te has been H aid and Sw itzerland, a n d they a re po pu lar in L a tin A m erican co u n tries a n d it a) he nation s which h av e low in te re st h a s also become th e p rim a ry factor in the ns stabilization p ro g m m e s of K orea an d ỈI brief, they a d m itte d in theory an d in p:tce th a t th e re la tio n sh ip betw een irn s t te a n d inflation is undeniable It isu basis for using th e in te re s t te tool icoitrolling inflation in m any different nois in modern economic circumstances T aiw an in th e m iddle of th e 1960s, and Indonesia in 1986 a n d 1974 Some o th e r n atio ns such as J a p a n , C h in a fell into inflation in th e century The 1990s of th e tw e n tie th inflation r a te of these countries was a t th e m in u s level (Ja p an : % / year, C hina: - 2.6 % / year) The Tie Federal Reserve System of the governm ents of th e se cou ntries h a d to use Lt(d S ta te s of America (FED), to gether many W1 )ther tools, actively used th e in te re st overcome n t)ol in controlling inflation d urin g the in te re st te (J a p a n im p le m e n te d th e zero daces w hen in te re s t rate, C h in a from 1996 to July, th e economy faced the different m e a s u re s deflation, ĨDhable situ a tio n of inflation rate In th e 1997 seven tim es y rso f 1979 and 1982, th e inflation te rate) and tools including to lowering lowered th e in te re st (Anerica w as alw ays a t th e two digit However, u sin g th e in te re s t r a te tool in lek By raising th e discount te to a hi evel in A m erica’s histo ry (10.5 % in 10 and 11.5 % in 1981), an d therefore, t iiterest te a m o u n te d to 13.36 % in 19 and 16.38 % in 1981, did FED reduce t ilflation r a te from 13.7 % in 1979 to ° / in 1980 a n d 6.1 % in 1981, 1982 In tn:e, a t th e end of 1978, th e economy f reckoned, im p lem ented an d laid ov more actively Decision No.39 / d ated on April 10, 1989 set up the b a n k ’s fu n d a m e n ta l principles of Oi in te re st te an d deposit in te re st rat* In reality from J u ly in 1987 to F e b ru a ry in 1989, th e in te re s t te w as adjusted twice in th e direction of lessening subsidization d m a tic a lly th ro u g h credit and inflation factor The G overnor director of the S ta te B an k s tip u la te d th e agreed in te re st r a te b ased on two principles: agreed loan in te re s t te w as equal to th e highest deposit in te re s t r a te (at t h a t tim e it was 8%) plus ad d itio n a l b a n k charge (at th a t tim e w as 0.3 - 0.4 %), th u s th e in te re st te s increased rem ark ab ly This in te re st te policy played an active role, avoiding ad van tag e the of s titu a tio n b a n k ’s of capital ta k in g to store commodities and w aiting for profits when the price of th e m increases, and freeding billions of com m odity money considered stag n a n t en terp rises This to policy consider also pluses made an d minuses, revoke capital an d increase the circle of capital Therefore, the price index dropped to 7.2 % p e r m onth in the last six m onths of 1988 a n d % per m o nth in the first six m on th s of 1998 Moreover, com m ercial b a n k s dealt w ith in te re st te u n m eth o d ically and raised follows: 1) The in te re s t te m u st be enouih preserve the capital a n d profit higher th a n the guided one In particular, 2) A u n ite d in te re s t is applie* economic sectors a n d ad justed to t the guided in te re s t te of the state b an k fluctuation of m a rk e t prices the in te re s t r a te to th e level th a t was on J u n e 6th, 1988 was 8.3 %, b u t some ban k s im p le m e n te d with th e level of 8.4 %, commonly with - 10 % a n d even 11- 12% V N u , Journal o f Science, Economic S-Lxiw, N J E , 2004 3) All th e sources of capital mobiiz by b a n k s for loan get in te re s t an d e i:t The *9 The difference betw een the loan n e)e^t r a te and th e in te re st te sa'iiigg on average is 0.5 % per month of U nited M onetary N ations, Fund appreciated inflation th e and V ie tn a m ’s The In te rn a tio n a l World fight developm ent B ank a g ain st pro g ram m e report of th e U nited N ations in December, *) The stru c tu re of th e in te re st te of ’S/Digg an(j th e loan in te re s t te consists basic in te re st r a te a n d th e index of ủ n ịa jre in m a rk e t prices •phe principles above were 1989 stated: The m e asu re s to stabilize finance and money ta k e n by the governm ent of V ietnam in fighting again st inflation were re m a rk a b ly successful in 1989 In fact, to control inflation w as the npieifiented, from th e situ a tio n t h a t th e resu lt of im plem entin g nniis in te re s t te s la ste d for m any years, m easures and tools in controlling inflation, k of which the effective contribution of the in te re st te s ifectiye ones in becam e 1989 ne>e$t te s w ere nlation te (from th e su rplus Moreover, ad ju sted the to th e M arch, 1989 m any different in te re st te tool w as prim ary In 1989, m a rk e t prices grew on to average by 2.5 % / m o nth (15% / m onth in