Việt Nam to benefit from Fed’s rate cut

According to experts, the Fed’s interest rate cut will support Việt Nam’s monetary policy management as the State Bank of Vietnam (SBV) may not be under pressure of dollar appreciation after the greenback weakens in the wake of the Fed’s rate cut.

Goods are exported at a port. The recovery of consumption in the US and other developed countries in the wake of the Fed’s rate cut is a huge opportunity for Việt Nam’s exports. Photo vneconomy.vn

Việt Nam’s exchange rate, exports and investment capital flows will benefit when the US Federal Reserve (Fed) and central banks of major countries lower interest rates, experts said.

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 Việt Nam’s monetary policy management as the State Bank of Việt Nam (SBV) may not be under pressure of dollar appreciation after the greenback weakens in the wake of the Fed’s rate cut.

Dr. Cấn Văn Lực, member of the National Financial and Monetary Policy Advisory Council, said the interest rate reduction by the Fed and central banks of major countries will have three very positive impacts on the Vietnamese economy.

Firstly, the pressure on exchange rates will certainly be much reduced. The interest rate difference between the US dollar and the Vietnamese đồng is currently high because the Fed keeps interest rates at a record high, while Việt Nam has lowered interest rates since last year. Therefore, when the US Dollar Index (DXY) has risen recently, the exchange rate in the domestic market is somewhat rising.

The interest rate cut of major central banks will reduce the interest rate difference between the đồng and the dollar, as well the đồng and many other currencies, which will help reduce pressure on the domestic exchange rate.

Second, the Fed’s rate cut will help reduce 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 be improved.

The recovery of consumption in the US and other developed countries is a huge opportunity for Việt Nam’s exports. In the first two months of this year, Việt Nam’s exports grew again, of which exports to the US increased by 33.7 per cent, 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 Việt Nam’s exports to recover even stronger.

Third, the Fed’s interest rate cut will contribute to improving investment capital flows in Việt Nam, Lực said, explaining that when the dollar interest rates are high, investment capital flows will return to the US, instead of other countries, including Việt Nam.

The Vietnamese Prime Minister has recently also directed ministries and branches to make efforts to upgrade Việt Nam’s stock market. The improvement of the stock market, together with the interest rate cut of major central banks, will be two important factors to attract indirect investment capital flows into Việt Nam in the second half of 2024 and next year.

With the move, Lực forecasts that Việt Nam’s economic growth this year can reach 6.0-6.5 per cent and inflation will be completely under control at below 4 per cent.

Source: VNS