Sharing at the policy roundtable discussion on the topic "Potential impacts of the Fed's interest rate changes on the Vietnamese economy" held on the afternoon of October 24, Associate Professor, Dr. Pham Thi Hoang Anh - Deputy Director of the Academy in charge of the Board of Directors, Banking Academy - assessed that the decision of the US Federal Reserve (Fed) to reduce the operating interest rate by 0.5 percentage points after a long period of continuous increases has affected the monetary management activities of all countries with trade partnerships with the US, including Vietnam.

For the Vietnamese economy, the Fed's move has specific impacts.

Firstly , it helps narrow the interest rate gap between VND and USD, thereby reducing pressure on the VND/USD exchange rate. “Thus, the pressure on the foreign exchange market as well as the pressure on Vietnam's foreign exchange reserves will decrease accordingly,” Associate Professor, Dr. Pham Thi Hoang Anh stated her opinion.

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Pressure on exchange rates will decrease when the FED lowers interest rates. Photo: Hoang Ha.

Second , this will create room for the State Bank of Vietnam to operate monetary policy. Accordingly, the State Bank can maintain low interest rates, helping to reduce the burden of interest costs for businesses, supporting economic growth.

According to Associate Professor, Dr. Pham Thi Hoang Anh, in addition to the two above-mentioned impacts on Vietnam, the Fed's interest rate cut also has a positive impact on the trade balance, as Vietnamese export enterprises will reduce pressure on exchange rates.

Ms. Hoang Anh cited: "If VND is not devalued too much, the price of imported goods will not be too expensive, leading to production of export goods not being under pressure from price increases, reducing the cost of export goods, helping to increase the competitiveness of Vietnam's export goods."

According to Mr. Nguyen Quang Thuan - Chairman of the Board of Directors of FiinGroup Joint Stock Company - the Fed's interest rate reduction will also facilitate Vietnam in mobilizing international capital to implement large infrastructure projects.

Regarding the corporate debt market, according to Mr. Nguyen Quang Thuan's assessment, in the past 3-4 years, Vietnamese enterprises have borrowed very little foreign bonds; there are only a few large enterprises, such as Masan .

“We expect that the Fed's interest rate reduction and continued interest rate reduction will create a catalyst for the international capital market to be more favorable for Vietnamese businesses,” said the Chairman of FiinGroup.

It is worth noting that trade finance services to import-export activities of Vietnamese enterprises will benefit a lot more. Because all import-export transactions are subject to cost constraints such as insurance, finance will be reduced.

“In short, the benefits from the Fed's interest rate cut for us are huge. The problem is how to take advantage of that trend,” Mr. Thuan noted.

At the discussion session, experts also expressed their expectation that the Fed will continue to cut interest rates in the coming time, with a reduction of 0.25-0.5%/year, especially in the context of internal factors of the US economy being favorable for loosening monetary policy.

According to Mr. Nguyen Quang Thuan, businesses that have to import equipment and raw materials from abroad will benefit and they expect the Fed to continue to reduce interest rates further.

Regarding the prospect of whether the Fed will continue to cut interest rates next month, Prof. Do Xuan Hung - Massey University, Director of the Finance - Banking Network (AVSE Global), said that the probability of a reduction is very high. However, like many experts, Prof. Do Xuan Hung said that the Fed will lower interest rates gradually, there will not be a sharp reduction and we should not expect too much from a sharp reduction in interest rates by the Fed.

However, Mr. Hung analyzed, the monetary policy of the US or other countries also depends on geopolitical conflicts in the world, as well as on the results of the upcoming US presidential election.

The discussion session on the topic "Potential impacts of Fed interest rate changes on the Vietnamese economy" is part of the 8th Vietnam Symposium in Banking and Finance (VSBF 2024), co-organized by the Global Vietnamese Scientists and Experts Organization (AVSE Global), the Banking Academy, the International Association for the Advancement of Financial Economics (ISAFE), EMLV Business School and Massey University.