Foreign exchange rates to remain under pressure in H2 2024

The central bank may have to continue to sell the dollar if it wants to control the exchange rate. Photo kinhtemoitruong.vn

HÀ NỘI — The State Bank of Vietnam (SBV) will still face pressure on the exchange rate in the second half of 2024 as the US dollar is forecast to remain strong, analysts believe.

In a recent report, analysts from Viet Dragon Securities Company (VDSC) said the dollar will maintain its strength because the interest rate difference between the US and other countries is still high when the US Federal Reserve (Fed) cuts interest rates more slowly and less than that of other central banks.

In addition, many economists believe if Donald Trump wins the upcoming US presidential election, it will cause inflation to increase again, which will affect the Fed’s interest rate decision. Persistent geopolitical risks will lead to the need to hoard the dollar as a safe haven.

Therefore, VDSC analysts believe that the SBV may have to continue to sell the dollar if it wants to control the exchange rate.

According to the analysts, due to Việt Nam’s limited foreign exchange reserves, demand for the dollar often increases near the end of the year. This will pose a potential risk that the SBV’s sale of the dollar will not achieve the goal of restraining the rise of exchange rates.

Therefore, they forecast that the SBV will further raise interest rates in the open market operation (OMO) to narrow the USD-VNĐ interest rate difference in the interbank market. VDSC forecasts that the expected increase could be 25-50 basis points.

Currently, the interest rates for issuing bills and mortgages of valuable papers on the OMO are both 4.5% per year, equivalent to the refinancing interest rate.

In the scenario of not being able to control the foreign exchange rate, despite having intervened by selling the dollar, VDSC believes that the SBV will raise its policy interest rates by 25-50 basis points in the second half of 2024.

In the first half of 2024, deposit interest rates have experienced a recovery from lows and increased on average by about 30-50 basis points compared to the end of March 2024. However, deposit interest rates are still about 15-45 points lower than that at the end of last year.

In the second half of 2024, VDSC believes that an increase in deposit interest rates of about 50-100 basis points is a suitable scenario based on expected fluctuations in exchange rates and policy interest rates.

As for lending interest rates, statistics from the SBV show that lending interest rates decreased by about 90 basis points in the first five months of this year, faster than the decreasing rate of deposit interest rates. The increase in deposit interest rates will affect the decline in lending interest rates, however, VDSC expects this impact will only become more evident in the last quarter of this year, or early 2025. — VNS