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Experts: 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 Vietnam’s economy significantly as the move was foreseeable, according to experts.

The domestic foreign exchange market is forecast to remain stable this year.
The domestic foreign exchange market is forecast to remain stable this year.

Fed policymakers on September 26 lifted the benchmark overnight lending rate by a quarter of a percentage point to a range of 2 percent to 2.25 percent.

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 Can Van Luc, chief economist at the Bank for Investment and Development of Vietnam (BIDV), the Fed’s interest rate hike had been forecast so international and domestic markets were prepared for it.

Lucc said the Fed’s move should not concern Vietnam’s financial and monetary markets as the domestic macro-economy was stable while outstanding loans in US dollars were less than 8 percent of total outstanding loans.

Luc 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.

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

The Fed’s impact on the capital inflow into Vietnam’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 1.5 billion USD in Vietnam’s stock market, he said.

However, Vietnam 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, Ngo Dang Khoa, head of markets at HSBC Vietnam, said that the pressure of the Fed’s interest rate hike on Vietnam’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 Vietnam’s largest trade partners,” Khoa told Export value to China accounts for more than 20 percent of Vietnam’s total trade turnover, and Vietnam has the largest trade deficit with China.

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

In a report released on September 26, the Asian Development Bank (ADB) also noted that despite the downward revision for growth this year, Vietnam’s inflationary pressures were likely to persist in the short term.

According to the ADB, the VND 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 VND, adding to inflation, the ADB said.