Are the signs of a Fed rate reversal clear?
After consecutive months of stopping the interest rate hike, although Fed leaders are still determined to fight inflation, many economic experts have predicted a reduction in the basic interest rate in 2024.
According to a survey by CME Group, the market is expecting a high level of confidence in the scenario that the Fed will only maintain interest rates in the upcoming meetings and cut interest rates starting in the second quarter of 2024 after inflation signals have become more positive. This signal will also have some impact on the Vietnamese economy.
Fed lowers interest rates in 2024, how can Vietnam's economy benefit? (Photo TL)
According to VNDirect Securities' assessment report, US inflation continued to cool down in October 2023, increasing by only 0.2% in the month and lower than the 0.3% increase in September. This is the clearest signal for expectations that US operating interest rates have peaked.
Meanwhile, the US Consumer Price Index (CPI) in November also showed a slight decrease compared to the same period last year. FWDBond Chief Economist Chris Rupkey said that this CPI report did not change much the expectations about the Fed's interest rate cut roadmap, but the market seemed to be more interested in the Fed Chairman's statements to determine when the agency would introduce a policy of interest rate reversal.
In the scenario where the Fed lowers interest rates, what advantages will the Vietnamese economy have?
First, when the interest rate hike is reversed, the exchange rate pressure will be loosened. Currently, some signs are clear, such as the exchange rate in October has turned down compared to the peak in September. In November, the central exchange rate decreased by 0.7%, and the commercial bank exchange rate also decreased by 1.3% compared to the previous month.
The impact of interest rates on exchange rates was also more evident in November. As soon as the Fed announced it would stop raising interest rates, the USD price on the international market fell sharply and many experts predicted that it would continue to fall in the first months of 2024.
From there, VNDirect experts expect that the cooling pressure on exchange rates will bring some significant benefits to the Vietnamese economy.
However, some cautious opinions say that the Fed's interest rate cut could also have a two-way impact on the economy.
First, the Fed’s interest rate cut could create more room for the VND to stabilize its value against the USD. Foreign investment disbursements in 2024 could also become stronger, helping to improve Vietnam’s foreign exchange reserves.
However, in 2024, when the world economy begins to recover, domestic enterprises may increase imports of raw materials for production. At the same time, with a stable exchange rate, people's demand for luxury goods may increase, causing a trade deficit in the first few months of the year. However, this deficit will not be as large as this year.
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