Ripple effect: The Quy Nhon port in Vietnam’s Binh Dinh province. It is expected that when US interest rates come down, so too will the South-East Asian nation’s economic growth and consumption experience an upward trend. — AFP
HANOI: Vietnam’s exchange rate, exports and investment capital flows will benefit when the US Federal Reserve (Fed) and central banks of other major countries lower interest rates, experts say.
After the latest meeting, it is forecast that the Fed will have three interest rate cuts this year, starting mid-year.
According to experts, the Fed’s interest rate cut will support Vietnam’s monetary policy management, as the State Bank of Vietnam may not be under pressure from US dollar appreciation after the greenback weakens in the wake of the Fed’s rate cut.
Dr Can Van Luc, a member of the National Financial and Monetary Policy Advisory Council, said the interest rate reduction by the Fed and central banks of other major countries will have three very positive impacts on the Vietnamese economy.
Firstly, the pressure on exchange rates will certainly be reduced.
The interest rate difference between the US dollar and the Vietnamese dong is currently high because the Fed keeps interest rates at a record high, while Vietnam has lowered interest rates since last year, he said.
Therefore, when the US dollar index rose recently, the exchange rate in the domestic market also somewhat rose.
The interest rate cut by major central banks will reduce the interest rate difference between the dong and the US dollar, as well as between the dong and many other currencies, which will help reduce pressure on the domestic exchange rate, he added.
Second, the Fed’s rate cut will help reduce the costs of mobilising dollar-denominated capital for enterprises, the government and individuals.
In the US, debt is very common, as individuals and households mainly borrow. Therefore, when interest rates decrease, economic growth and consumption will improve, said Luc.
The recovery of consumption in the United States and other developed countries is a huge opportunity for Vietnam’s exports.
In the first two months of this year, Vietnam’s exports grew again, of which exports to the United States increased by 33.7%, while the same period last year declined.
If the Fed lowers interest rates in the second half of the year, it will be a factor in supporting Vietnam’s exports to recover even stronger.
Third, the Fed’s interest rate cut will contribute to improving investment capital flows in Vietnam, Luc said, adding that when US dollar interest rates are high, investment capital flows will return to the United States instead of other countries, including Vietnam.
The Vietnamese Prime Minister recently directed ministries and branches to make efforts to upgrade Vietnam’s stock market.
The improvement of the stock market, together with the interest rate cut by major central banks, will be two important factors in attracting indirect investment capital flows into Vietnam in the second half of 2024 and next year.
With the move, Luc forecast that Vietnam’s economic growth this year could reach 6% to 6.5% and inflation would be completely under control at below 4%. — Viet Nam News/ANN
