FED's interest rate cut has many positive impacts on Vietnam's economy

Recently, the US Federal Reserve (FED) decided to cut the operating interest rate of the country's economy by 0.5%, marking the first interest rate cut in more than 4 years. As the US Central Bank, the FED's "strong" decision signals that the US will begin a path of loosening monetary policy to promote economic growth.

The FED's decision also has a strong impact on the global financial market and other fundamental macroeconomic factors of economies around the world, including Vietnam. Regarding the impact of the FED's decision to lower interest rates on the Vietnamese economy, VTV reporters interviewed financial and banking expert Dr. Nguyen Tri Hieu.

PV: Sir, in your opinion, how will the FED's interest rate cut impact the Vietnamese economy?

Dr. Nguyen Tri Hieu: At this time, the Vietnamese economy is being strongly affected by Typhoon Yagi. The reduction of FED interest rates also creates room for the State Bank of Vietnam to reduce interest rates in the interbank market, thereby reducing interest rates in all credit markets, supporting the economy, especially the economy of the North, which is facing many difficulties after the consequences of Typhoon Yagi.

Dr. Nguyen Tri Hieu - finance and banking expert

The FED's interest rate cut will help reduce pressure on the VND exchange rate against the USD, and our exchange rate will be more stable in the last months of the year. When the exchange rate is more stable, there will also be less pressure on inflation, allowing the State Bank to have more flexible monetary policies than before. The State Bank may be considering and will continue to consider how to further reduce interest rates, but this will require a delay, perhaps 1-3 months, but there will be immediate impacts on the exchange rate, so there will be no delay at all.

PV: What immediate impacts will the exchange rate bring about for the Vietnamese economy, sir?

Dr. Nguyen Tri Hieu: When the USD weakens due to the FED's interest rate cut, it can reduce pressure on the exchange rate, which has a positive effect on controlling inflation in Vietnam, because Vietnam imports a lot. With a stable exchange rate, it will also stabilize the inflation situation in Vietnam and help Vietnam's growth.

On the contrary, it will be disadvantageous for exports, because when exporters receive USD and exchange it to VND, they do not receive any benefit from the increase in exchange rate. In this case, the exchange rate is stable, or may even decrease, which is not beneficial for exporters. However, the disadvantages of exporters are offset by the advantages of importers.

PV: Can you analyze more specifically the direct impact of the FED's decision to reduce interest rates on Vietnam's imports?

Dr. Nguyen Tri Hieu: Vietnam has a two-way import-export turnover of nearly double its GDP. Therefore, the FED's interest rate reduction has also caused the value of the USD against other foreign currencies to decrease. For Vietnam, a country that can be said to depend on import-export mainly in USD, when the USD value weakens, it means that the value of VND compared to USD increases, which will help stabilize the exchange rate (at least from now until the end of the year), thereby benefiting Vietnam's imports because Vietnam imports a lot to be able to export. Therefore, import prices calculated in USD, when the value of USD decreases, also decrease import prices, if calculated in VND, that is a benefit for Vietnam's foreign trade.

The FED's interest rate reduction also creates room for the State Bank of Vietnam to reduce interest rates in the interbank market.

PV: Besides the import-export sector, which other sectors are significantly indirectly affected by the FED's decision to cut interest rates, sir?

Dr. Nguyen Tri Hieu: The FED's interest rate cut will have a positive impact on the stock market, as stock prices can be supported by interest rate cuts around the world, in the US as well as in Vietnam. US stock prices will increase in the coming days and affect global stock markets, including the Vietnamese stock market.

Vietnam's stock market will be affected by the FED's move to reduce interest rates. Vietnam has room to further reduce interest rates, helping to increase the price of stocks in the Vietnamese stock market. Because stock prices and interest rates are always inversely proportional to each other, when Vietnam's interest rates may continue to decrease, it will have a positive impact on Vietnam's stock prices, pushing up Vietnam's stock prices, which is beneficial for the stock market.

PV: Thank you very much for your comments and analysis.

Source: https://vov.vn/kinh-te/fed-ha-lai-suat-co-nhieu-tac-dong-tich-cuc-toi-kinh-te-viet-nam-post1123004.vov