Speaking to Tin Tuc newspaper reporters on September 19, some economic experts said: The US Federal Reserve (Fed)'s 0.5% interest rate cut will have positive impacts on Vietnam's economy.
More room to reduce interest rates, reduce pressure on exchange rates
According to economist - Dr. Nguyen Tri Hieu, the Fed's 0.5% interest rate cut is considered a strong measure in the monetary easing policy to support the economy.
“Lower interest rates will reduce borrowing costs, thereby supporting businesses and households. US inflation has fallen to 2.5% in August 2024 from a peak of 9.1% in mid-2022, while the unemployment rate recently rose to 4.2%. To avoid a ‘soft landing’, the US has reduced interest rates to support businesses and support consumer loans,” said Mr. Nguyen Tri Hieu.
For Vietnam’s economy, the Fed’s first interest rate cut in more than four years will help cool the VND/USD exchange rate, reduce pressure on interest rates, promote import and export activities and contribute to economic growth. However, in addition to being beneficial for import activities, the Fed’s interest rate cut will somewhat affect the export sector when the USD weakens.
The cooling of the USD/VND exchange rate will help the monetary policy management agency "breathe easier". In the second quarter of 2024, the USD in the international market was pegged at a high level, causing the VND to depreciate by about 5% during this period. Since the beginning of July 2024, the domestic and foreign financial markets have always expected that in September 2024, the Fed will cut interest rates by 0.25 - 0.5% points. This has caused the USD value in the international market to decline compared to many other currencies. Thanks to that, the VND/USD exchange rate has cooled down a lot compared to a few months ago.
According to data from the State Bank of Vietnam, on July 1, the central exchange rate decreased from 24,600 VND/USD to 24,151 VND/USD on September 18. The VND/USD exchange rate at commercial banks also decreased sharply from 25,464 VND/USD to 24,151 VND/USD.
According to Mr. Vu Duc Hai - Director of Currency Trading Division - Eximbank, before the expectation of Fed interest rate reduction, the State Bank has had a certain reaction. Over the past month, the State Bank has reduced the OMO interest rate (interest rate for commercial banks mortgaging government bonds or other valuable papers to borrow capital from the State Bank) from 4.5% to 4%.
This move shows that the State Bank has gone one step ahead of the Fed's interest rate trend. This helps commercial banks have more cheap capital to reduce input costs, thereby having more room to lower lending rates, creating conditions for businesses to access capital, promoting economic growth.
Speaking to reporters of Tin Tuc newspaper, Associate Professor, Dr. Dinh Trong Thinh said: The Fed's interest rate cut is expected to weaken the USD, thereby raising the value of other currencies. The pressure of the VND/USD exchange rate cooling down helps the State Bank (SBV) to lower interest rates. According to Mr. Dinh Trong Thinh, the SBV is implementing many solutions to promote credit growth to support the economy, including measures to gradually lower lending rates. Especially in the current context, the Government is strongly directing ministries, branches, and the banking system to support customers to overcome the consequences caused by Storm No. 3, including restructuring debt repayment terms, considering loan interest exemptions and reductions, continuing to provide new loans to restore production and business after the storm, etc.
Vietnam's stock market has more "excitement"
A Fed rate cut typically leads to a weaker US dollar, prompting international investors to seek higher-yielding markets. Investment funds tend to shift to emerging markets like Vietnam. This creates a positive flow of foreign capital back to Vietnam, especially in sectors with high growth potential.
According to Dr. Nguyen Tri Hieu, the Vietnamese stock market is getting excited when the Fed lowers interest rates. The performance of the VN-Index will be greatly influenced by the internal strength of the domestic economy, Vietnam's fiscal policy and monetary policy.
“On the contrary, Vietnam’s economy is also being affected by Typhoon Yagi and it is forecasted that there will be more typhoons coming, so there will be offset impacts. It is very difficult to forecast the stock market in Vietnam from now until the end of the year,” said Mr. Nguyen Tri Hieu.
According to some economic experts, the lower USD interest rate helps attract international investment capital into developing countries' markets, which have a significant difference between domestic currency interest rates and USD interest rates. This is contrary to the reality of recent times, when USD interest rates are high, investment capital tends to shift from emerging/frontier markets back to the US.
"The Fed's short-term interest rate cut has more positive impacts on the Vietnamese economy and stock market than negative impacts. How specific actions from the Fed's upcoming easing policy will take place and whether the scenario of a 'hard landing' or 'soft landing' for the US economy will also have a significant impact on Vietnam. We will need to continue to closely monitor developments to have timely assessments and forecasts," the ABS expert group emphasized.
Faced with the possibility that the USD will hardly fall sharply, Mr. Phan Dung Khanh - Investment Consulting Director of Maybank Investment Bank, said that although the Vietnamese stock market will benefit from this decision of the Fed, it may still maintain a tug-of-war trend, and it will not be easy to surpass the 1,300 level sustainably. Gold and US stocks alone may still surpass the peak a little more when the temporary cash flow is still maintained. However, the market will gradually decrease once the cash flow is reduced, depending on the level of impact of interest rates in reality.
According to Mr. Phan Dung Khanh, if the USD decreases, the price of gold will increase, but in reality, it is not certain that the greenback will decrease further because it has decreased quite a lot since 2023 until now. Historically, there have been cases where the Fed reduced interest rates, causing the USD Index to decrease for a few days, but then rebounded, putting pressure on the price of gold.
For short-term gold investors, this is an opportunity to take profits because the price has been increasing continuously for a long time. For medium- and long-term investors, Mr. Phan Dung Khanh said, they can wait for the gold price to adjust to buy more. However, this strategy is suitable for those who intend to hold gold for 3-5 years.
VN-Index increased for the third consecutive session, surpassing the 1,270 point mark Closing the afternoon session on September 19, the HOSE floor had 240 stocks increasing and 122 stocks decreasing, VN-Index increased 6.37 points (+0.50%), to 1,271.27 points. Total trading volume reached more than 607.5 million units, worth VND14,285.4 billion, down 24% in volume and 23% in value compared to yesterday's session. Negotiated transactions contributed more than 129.7 million units, worth VND2,294 billion. The bluechip group continued to have more green colors, although like the morning session, most of them only had a modest increase. Except for SSB shares, which suddenly increased to the ceiling price of +6.73% to VND16,650, with more than 2.75 million units matched. On the HNX floor, the HNX-Index moved sideways around the end of the morning session and bounced back at the end of the session, but it was only enough to help the index increase slightly. On the afternoon of September 19, the HNX floor had 77 stocks increasing and 71 stocks decreasing, the HNX-Index increased by 0.82 points (+0.35%), to 233.77 points. The total matched volume reached more than 42.4 million units, worth VND 828.2 billion. Negotiated transactions had nearly 14 million more units, worth VND 160.6 billion. In the session on September 19, SJC Company and banks in the big4 group reduced the selling price of SJC gold bars by VND200,000/tael, down to VND81.8 million/tael (selling). The buying price of gold bars at SJC Company decreased accordingly to VND79.8 million/tael. The selling price of gold rings also decreased by VND100,000/tael, down to VND79.1 million/tael, buying at VND77.8 million/tael. Compared to the converted world gold price, the price of SJC gold bars is 5.02 million VND/tael higher, while the price of 9999 gold rings is 2.32 million VND/tael higher. |
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