VINACHEM

Experts suggest that the Fed's rate cuts will allow the State Bank of Vietnam to maintain lower interest rates, reducing costs for businesses.

Speaking at a policy roundtable on the topic "Potential Impacts of the Fed's Interest Rate Changes on Vietnam's Economy," held on October 24, Associate Professor Dr. Pham Thi Hoang Anh, Deputy Director of the Banking Academy, emphasized that the U.S. Federal Reserve's decision to cut its benchmark interest rate by 0.5% after a period of consistent increases has influenced monetary policies across all countries with trade relations with the U.S., including Vietnam.

The Fed's move has had specific implications for the Vietnamese economy:

Firstly, it helps narrow the interest rate gap between the Vietnamese dong (VND) and the U.S. dollar (USD), thereby reducing pressure on the VND/USD exchange rate. "This means reduced pressure on the foreign exchange market as well as Vietnam's foreign exchange reserves," said Dr. Pham Thi Hoang Anh.

Secondly, this creates room for the State Bank of Vietnam to manage its monetary policies effectively. The State Bank can keep interest rates low, reducing loan costs for businesses and supporting economic growth.

According to Dr. Pham Thi Hoang Anh, beyond these two effects, the Fed's interest rate cuts also positively impact the trade balance, as Vietnamese exporters face less exchange rate pressure.

She explained, "The fact that the VND does not depreciate excessively keeps the cost of imported goods reasonable, reducing production costs for exports and enhancing the competitiveness of Vietnamese goods abroad."

Nguyen Quang Thuan, Chairman of the Board of Directors at FiinGroup, said the Fed's interest rate cuts would also facilitate Vietnam’s ability to raise international capital for large infrastructure projects.

Regarding the corporate debt market, Thuan noted that in the past 3-4 years, there has been minimal foreign bond borrowing by Vietnamese companies, with only a few large corporations, such as Masan, taking part.

"We expect the Fed's rate cuts, and potential further reductions, to serve as a catalyst for smoother access to global capital markets for Vietnamese enterprises," said the FiinGroup Chairman.

Another significant benefit will be seen in trade finance services, particularly in import-export activities. The cost reduction for insurance and financing in international transactions is expected to be substantial.

"In short, the benefits of the Fed's rate cuts for us are enormous. The question is how we can leverage this trend," Thuan emphasized.

During the roundtable, experts also expressed optimism that the Fed would continue to lower interest rates in the near future, with potential cuts ranging from 0.25% to 0.5% annually, especially given the favorable conditions in the U.S. economy for monetary easing.

Thuan added that companies needing to import equipment and raw materials from overseas would particularly benefit and are hopeful for further rate cuts from the Fed.

Regarding whether the Fed will cut rates again next month, Professor Do Xuan Hung from Massey University, Director of the AVSE Global Finance and Banking Network, noted that the likelihood is high. However, echoing the sentiments of many experts, Hung suggested that the Fed would proceed with gradual rate reductions rather than a sharp cut, advising against overly optimistic expectations for significant decreases.

He also pointed out that monetary policies in the U.S. and other nations are influenced by ongoing geopolitical conflicts and the outcome of the upcoming U.S. presidential election.

The policy roundtable on "Potential Impacts of the Fed's Interest Rate Changes on Vietnam's Economy" was part of the 8th Vietnam Symposium in Banking and Finance (VSBF 2024), co-organized by the Association of Vietnamese Scientists and Experts Global (AVSE Global), the Banking Academy, the International Society for the Advancement of Financial Economics (ISAFE), EMLV Business School, and Massey University.  – Source: VNN –