Which industries in Vietnam will the Fed's interest rate cut support?

Many US agricultural products are increasing exports to Vietnam - Photo: N.BINH

The US Federal Reserve (Fed) has just announced its decision to cut interest rates by 50 basis points, a move that is expected to have a two-sided impact on Vietnam's economy.

While a weaker US dollar could ease depreciation pressure on the dong, a slowing US economy would negatively impact Vietnam's export growth.

According to VinaCapital, the Fed's interest rate cut is a factor supporting the value of VND. In early 2024, the VND lost nearly 5% of its value, forcing the State Bank of Vietnam to tighten monetary policy.

However, thanks to expectations of a Fed rate cut, the VND has recovered nearly 4% since the end of June. This is also the general trend of regional currencies such as the Malaysian ringgit, Thai baht, and Indonesian rupiah.

VinaCapital said that the Fed's interest rate cut helps reduce the pressure on the State Bank to raise interest rates. However, as the US economy shows signs of slowing down, Vietnam's exports to the US - the main factor driving GDP this year - may face difficulties.

Therefore, Vietnam's GDP in 2025 will need to rely on domestic resources to maintain growth, through boosting infrastructure spending and real estate market recovery.

“We have repeatedly stressed the view that Vietnam’s current GDP boost from export growth is likely to fade next year, and the Fed’s move essentially confirms that.

Increasing infrastructure spending and accelerating the recovery of the real estate market are two powerful tools that the Government can use to avoid negative impacts from the decline in export growth," VinaCapital experts analyzed.

Meanwhile, Mr. Suan Teck Kin, director of global economic and market research at UOB Bank (Singapore), commented that the Fed's interest rate cut exceeding the previous forecast of 0.25% is a signal of uncertainty in the US economy.

However, the 50 basis point interest rate cut announced by the US Federal Reserve at its September meeting may increase the likelihood (and pressure) on the State Bank to consider a similar policy easing.

He also forecasts the Fed will continue its rate cut cycle in 2024 and 2025, indirectly impacting the State Bank 's monetary policy. "We maintain our expectation of a 100 basis point cut in 2025, with a 25 basis point cut per quarter.

The State Bank will maintain key policy interest rates in 2024 to control inflation, and Vietnam's GDP growth is expected to rely on public investment stimulus and real estate recovery," UOB experts forecast.

The headline CPI rose 4% year-on-year in the first eight months of 2024, slightly below the target of 4.5%. Inflationary pressures could intensify following disruptions to agricultural output, with food accounting for 34% of the CPI.

The State Bank is likely to adopt a more targeted approach to support affected individuals and businesses in their own region, rather than deploying a broad nationwide tool such as an interest rate cut.

Both VinaCapital and UOB experts agreed that although the Fed's move poses challenges, it also opens up opportunities for Vietnam to step up economic stimulus measures, ensuring stable growth in the future.

At the Federal Open Market Committee (FOMC) meeting on September 17-18, the Fed decided to reduce the target range of the Federal Funds Rate (FFTR) by 50 basis points to a range of 4.75%-5%. This is a deeper cut than the market expected (-25 basis points), and marks a "good and strong start" to the Fed's rate cutting cycle, according to FOMC Chairman Powell.

The Fed also voted to cut the interest rate on excess reserves (IOER) by 50 basis points to 4.9%, while keeping Quantitative Tightening (QT) unchanged.

Source: https://tuoitre.vn/fed-cat-giam-lai-suat-ho-tro-nganh-nao-cua-viet-nam-20240921140622363.htm