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How will FED’s rate cut affect Vietnam?
Economists believe that the US FED’s decision to slash the interest rate to a record low will mainly affect Vietnamese imports and exports, while people will benefit from the VND’s revaluation.
According to Ngo Tri Long, an independent economist, mostly the import and export activities of Vietnam will be affected by the US FED’s move to slash the interest rate to 0-0.25%.
“The dollar’s devaluation against the local currency will make Vietnamese exports less competitive. This is significant because goods exported to the US market account for 25% of total exports of Vietnam,” Long said.
However, Long believes that the dollar’s depreciation will lower the trade deficit, a big problem for Vietnam. Meanwhile, people will have to think about whether or not to use dollars and make deposits in dollars or VND.
Since September 2007, FED has cut the interest rate 10 times to help the US economy, which has been falling into a recession. The rate of 0-0.25% proves to be a record low level, and this is the first time the interest rate has not been fixed, but given in a range.
The FED’s move will make the greenback decrease in value, because while FED is applying a policy with the charge of nearly zero to US banks, European leaders are not doing that, making the euro more attractive.
The FED’s decision has led the greenback to slide by 2.1% in price in comparison with six other hard currencies. The dollar has devaluated sharply against the euro, with one dollar converted to Euro1.4094, while the rate was US$1.3738/Euro1 before the decision.
Long said that before FED released the decision on slashing the interest rate, experts forecast that in Vietnam, the dollar would revaluate by 3-5% against VND. This explains why many Vietnamese people have converted VND into dollars to make dollar deposits at banks. However, contrary to the predictions, the dollar has been depreciating, which will force them to rethink.
After the FED’s decision, the Dow Jones soared by 4.2%, while Nasdaq by 5.4%. Asian markets have also seen increases, though the markets prove to be tentative: Hong Kong by 2.2%, Seoul 0.7%, Tokyo 0.52%, Singapore 0.16% and Shanghai 0.09%.
Dan tri
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