Sunday, 26 May 2019

US Fed interest rate hike won’t have large impacts on Vietnam’s economy

Updated at Thursday, 21 Jun 2018, 11:52
The Hanoitimes - The US dollar has appreciated significantly against the local currency in the past few days in the wake of the US Federal Reserve (Fed)’s interest rate hike last week, but local officials and experts are not too worried, believing these hikes won’t affect Vietnam’s economy in any major way.
On the morning of June 14 (local time in Vietnam), Fed decided to raise the benchmark interest rate by 0.25 percentage points to 1.75-2 percent while implying that from now till the end of the year there will be two more rate hikes.
The dollar has appreciated by just 0.8 percent against VND to date this year.
The dollar has appreciated by just 0.8 percent against VND to date this year.
The move caused immediate impacts on the domestic market with the dollar appreciating significantly against VND in both official and unofficial markets.
On June 20, the central bank listed the daily reference exchange rate at VND22,617 per dollar, up VND15 from the previous day. With the current trading band of +/-3 percent, the ceiling rate applied to commercial banks during the day is VND23,295 per dollar and the floor rate VND21,941 per dollar.
The USD/VND exchange rate quoted by all commercial banks also went up in the day.
Vietcombank raised the rate by VND10, listing the buying rate at VND22,810 per dollar and the selling rate at VND22,880. Compared with the end of last week, the dollar listed at Vietcombank rose by VND45.
The rate at BIDV was also up VND10, standing at VND22,815 for buying and VND22,885 for selling. 
The same move was seen at Techcombank, which added VND15 to buy the greenback at VND22,790 and sell at VND22,890.
In the unofficial market, the dollar was traded at VND23,000 for buying and VND23,100 for selling.
No worry in short run
Despite the appreciation, the State Bank of Vietnam Nam (SBV) said that the dollar demand and supply sources remained stable in the past days and banks had met all dollar demands of institutions and individuals.
The central bank continued net purchase of the greenback to build up the national foreign reserves, SBV said.   
Nguyen Hoang Minh, deputy director of SBV’s Ho Chi Minh City branch, said that SBV was closely monitoring the exchange rate to timely take measures.
Commercial banks also said that the dollar had appreciated by just 0.8 percent against VND to date this year, meaning the current rise not yet a concern.
Can Van Luc, chief economist of the Bank for Investment and Development of Vietnam, was not also too worried about the depreciation of VND against the dollar thanks to the country’s balance in dollar supply and demands while the central bank is still applying a flexible and effective exchange rate policy.
Besides this, the record high of the nation’s foreign reserves of US$63 billion would also support the central bank to fight against external shocks to stabilize the exchange rate, Luc said.
Long-term cautions needed
Cao Viet Sinh, former vice minister of the Ministry of Planning and Investment (MPI) suggested the central bank be more cautious, saying that this Fed’s decision along with the implication to increase interest rate two more times this year will gradually influence on Vietnam’s economy.
According to Sinh, the Fed's move may not exert a large impact in the immediate future but it is going to be different at the end of the year, perhaps even more in the following year.
The government therefore should consider the exchange rate issue in the long run, Sinh said.
In its latest report, the National Financial Supervisory Commission also stresses that the dollar is forecast to be on an uptrend from now to the year-end, especially while the Fed plans to continuously increase interest rate, so the central bank needs to closely watch the move of the greenback to timely make flexible adjustments.
Phuong Thao
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