Fed’s latest rate decision won't have significant impact on Việt Nam

A bank teller counts US dollars at a transaction office in Hà Nội. The Fed's decision to leave interest rates unchanged has taken some heat off the currency, which is a good sign for Việt Nam's import activities. Photo cafef.vn

Though the latest US Federal Reserve (Fed)’s interest rate decision will not have a major impact here in Việt Nam, the move is still a positive signal for the economy, experts said.

Last Wednesday, the Fed held its benchmark interest rate steady in the 5.25-5.50 per cent range, for a seventh consecutive meeting.

The Fed’s decision to continue to keep rates on hold, is in direct contrast to Việt Nam, one of the few countries that has gone in the opposite direction, reducing interest rates many times since last year, with a decrease of 0.5-2.0 percentage points per year.

The Vietnamese đồng has been relatively stable compared to the US dollar and the country's monetary policy has been also proactively independent for the past few years.

The State Bank of Vietnam (SBV) will certainly continue to be flexible and act proactively, managing monetary policy tools to control inflation and support the economic recovery.

Dr. Lê Duy Bình, Managing Director of economic consulting firm Economica Vietnam, said that although the Fed’s recent decision will not have a great impact, it is still a positive signal for many economies, including Việt Nam.

The move shows that inflation in the US has cooled somewhat, after being at peak levels for quite a long time and many countries now expect that the Fed will continue to successfully control inflation.

If the Fed lowers interest rates in the near future, it will create excitement for many economies and Việt Nam is no exception because there is less pressure to adjust interest rates, Bình said.

Bình added the Fed's move has partly cooled the dollar. The dollar index (DXY) dropped to 104.4, from the previous level of more than 105.

The dollar depreciation is also a good sign for Việt Nam's import activities, with global raw material prices expected to decrease and inflationary fears for imports receding.

However, Bình noted, the most important thing is still how the SBV manages interest rates and exchange rate policies over the short term, to proactively respond to changes by the Fed and other major central banks.

An economic growth forecast for the second quarter of 2024, released recently by the United Overseas Bank (UOB)'s Global Economics and Market Research, is optimistic about Việt Nam's currency market in 2024, predicting that interest rates will stay low.

According to the report, instead of interest rate changes, the SBV is focusing on promoting growth to support economic activities, especially new growth areas, green transformation, the circular economy and social housing.

UOB’s analysts believe the SBV will keep the refinancing interest rate at the current rate of 4.5 per cent and focus efforts on supporting credit growth.

The SBV’s latest forecast, released at the end of May, said the central bank wants to increase credit growth by 5-6 per cent by the end of the second quarter of 2024 and reduce lending interest rates by 1-2 percentage points through simple lending procedures, cost-saving measures and digital technology applications.