Fed rate hike won’t have much impact on Vietnam

The US Federal Reserve (Fed)’s third interest rate hike this week would not affect Việt Nam’s economy significantly as the move was foreseeable, according to experts.

Fed policymakers on Wednesday lifted the benchmark overnight lending rate by a quarter of a percentage point to a range of 2 per cent to 2.25 per cent.

The Fed’s move comes amid a complicated international market with the accelerating US-China trade war and central banks in some countries tightening monetary policy.

However, according to Cấn Văn Lực, chief economist at the Bank for Investment and Development of Việt Nam, the Fed’s interest rate hike had been forecast so international and domestic markets were prepared for it.

Lực said the Fed’s move should not concern Việt Nam’s financial and monetary markets as the domestic macroeconomy was stable while outstanding loans in US dollars were less than 8 per cent of total outstanding loans.

Lực estimated that the country’s foreign debt would increase insignificantly as US dollar debts account for just a third of the country’s total while the hike could be offset by the depreciation of other currencies.

Lực also believed the exchange rate would remain stable thanks to the State Bank of Việt Nam’s daily reference exchange rate policy and the nation’s high foreign reserve.

The Fed’s impact on the capital inflow into Việt Nam’s stock market was also insignificant, especially after the Vietnamese market on Thursday was classified as a frontier market and added to FTSE Russell’s watchlist for a possible future upwards reclassification as Secondary Emerging, he said.

Reports also showed that in the past nine months, foreign investors remained net buyers of US$1.5 billion in Việt Nam’s stock market, he said.

However, Việt Nam still needed to monitor another Fed rate hike in December, three more next year, and one increase in 2020, while the global current economic situation remained complicated.

Sharing the same view, Ngô Đăng Khoa, head of markets at HSBC Vietnam, said that the pressure of the Fed’s interest rate hike on Việt Nam’s exchange rate and interest rate still existed as the Fed was not finished there.

“This pressure will depend on fluctuations of the Chinese renminbi as China is one of Việt Nam’s largest trade partners,” Khoa told cafef.vn. Export value to China accounts for more than 20 per cent of Việt Nam’s total trade turnover, and Việt Nam has the largest trade deficit with China.

The Fed’s policy to continue increasing interest rates would also put more risks on Việt Nam’s capital inflows and inflation, Khoa said, adding that regulations to stabilise the domestic macroeconomy would become more challenging.

In a report released on Wednesday, the Asian Development Bank (ADB) also noted that despite the downward revision for growth this year, Việt Nam’s inflationary pressures were likely to persist in the short term.

According to the ADB, the đồng has exhibited more weakness since July and could come under continued pressure as US interest rates rise and the dollar strengthens. Depreciation of the renminbi against the dollar, if it continues, could further put pressure on the đồng, adding to inflation, the ADB said.

Source: VNS

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