US Federal Reserve Rate Cuts to Benefit the VND
Experts say that if the US Federal Reserve (Fed) and other major central banks lower interest rates, Vietnam's exchange rate, exports, and investment capital flows will benefit.
It is expected that the Fed will cut interest rates three times this year, starting in mid-year.
Vietnam's monetary policy management will be supported by the Fed's interest rate cut, as the State Bank of Vietnam will not be affected by an appreciation of the US dollar after the greenback weakens after the Fed's rate cut.
According to Can Van Luc, a member of the National Financial and Monetary Policy Advisory Council, the Fed and other major central banks' interest rate cuts will have three very positive effects on the Vietnamese economy.
Firstly, exchange rates will be less pressured.
The interest rate difference between the US dollar and the Vietnamese dong is high because the Fed keeps interest rates at a record high, while Vietnam has lowered interest rates since last year.
As a result, the exchange rate in the domestic market also rose when the US dollar index rose recently.
He said major central banks are expected to reduce the interest rate difference between the dong and the US dollar and between the dong and many other currencies, which will reduce pressure on the domestic exchange rate.
In addition, the Fed's rate cut will help businesses, governments, and individuals mobilize dollar-denominated capital at a lower cost.
Debt is very common in the US, as individuals and households tend to borrow most of the time. Consequently, when interest rates decline, economic growth and consumption will increase.
Vietnam's exports are positioned to benefit greatly from the recovery of consumption in the United States and other developed countries.
Vietnam's exports grew again in the first two months of this year, with exports to the United States increasing by 33.7%, compared to last year.
It will support Vietnam's exports to recover even stronger if the Fed lowers interest rates in the second half of the year.
According to Luc, the Fed's interest rate cut will improve investment capital flows in Vietnam. When US dollar interest rates are high, investment capital flows will return to the United States instead of other countries, including Vietnam.
A recent directive from the Vietnamese Prime Minister directed ministries and branches to upgrade Vietnam's stock market.
Two important factors will attract indirect investment capital into Vietnam in the second half of 2024 and next year: the improvement of the stock market and the interest rate cut by major central banks.
According to Luc, Vietnam's economic growth could reach 6% to 6.5% this year, and inflation will not exceed 4%.
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