Brian Jeffrey
Impact of U.S. Rate Cuts on Vietnam’s Economy
During a policy roundtable on October 24, titled “Potential Impacts of the Fed’s Interest Rate Changes on Vietnam’s Economy,” Associate Professor Dr. Pham Thi Hoang Anh, Deputy Director of the Banking Academy, highlighted how the U.S. Federal Reserve’s recent decision to lower its benchmark interest rate by 0.5% is affecting global monetary policies, including those in Vietnam.
The Fed’s actions have led to several key outcomes for Vietnam:
Firstly, it has reduced the interest rate differential between the Vietnamese dong (VND) and the U.S. dollar (USD), lessening the strain on the VND/USD exchange rate. Dr. Pham stated, “This alleviates pressure on Vietnam’s foreign exchange market and its reserves.”
Secondly, the interest rate cut provides the State Bank of Vietnam with better opportunities to manage its monetary policies, enabling more favorable loan conditions which can stimulate economic growth.
According to Dr. Pham, the Fed’s rate cuts also have a beneficial effect on Vietnam’s trade balance, as the pressure on exporters regarding exchange rates is diminished.
“A stable VND helps keep import costs manageable, leading to lower production expenses and enhancing the competitiveness of Vietnamese exports,” she elaborated.
Nguyen Quang Thuan, Chairman of FiinGroup, commented that the Fed’s decision would improve Vietnam’s access to international funding for significant infrastructure endeavors.
On the topic of corporate borrowing, Thuan noted that Vietnamese firms have largely avoided foreign bond markets over the last few years, with only a handful of large companies like Masan engaging in such borrowing.
“We anticipate that the Fed’s rate cuts will create more opportunities for Vietnamese businesses to access global capital markets,” explained Thuan.
The trade finance sector stands to gain significantly as well, particularly in import-export operations, with reduced costs expected for insurance and financing in global transactions.
“To summarize, the advantages brought by the Fed’s rate cuts are substantial. The focus now is on how we can maximize this opportunity,” Thuan emphasized.
Experts at the roundtable shared a hopeful outlook for further rate cuts from the Fed, predicting reductions between 0.25% and 0.5% annually, supported by positive economic conditions in the U.S.
Thuan noted that businesses importing equipment and materials would benefit greatly and are optimistic about continued Fed rate cuts.
Professor Do Xuan Hung from Massey University, Director of the AVSE Global Finance and Banking Network, expressed a strong possibility of further rate reductions next month but urged caution, suggesting the Fed will adopt a measured approach rather than aggressive cuts.
He also pointed out that policy decisions in the U.S. and elsewhere are influenced by ongoing geopolitical tensions and the approaching U.S. presidential election.
This policy roundtable was part of the 8th Vietnam Symposium in Banking and Finance (VSBF 2024), organized by various institutions including AVSE Global, the Banking Academy, and Massey University.
