VINACHEM

As the US Federal Reserve raised its benchmark interest rates by a quarter point to bring down inflation rate despite its recent signs of slowing and giving no real hint of a pause in hikes, the cycle is predicted to continue to run.

The latest move from the Fed marked eight consecutive rate hikes since March 2022, with no signs that it has reached the peak of its hike journey. Assoc. Prof. Dr. Dinh Trong Thinh, a financial expert from the Vietnam Association of Financial Advisers, predicted that a rate hike of 25 percentage points was anticipated. Thinh stated that, in general, the pressure on the USD/VND exchange rate from the Fed’s interest rate hike is not significant.

Dr. Le Dang Doanh, former head of the Central Institute for Economic Management, also believes that the Fed’s interest rate rise is targeted to contain inflation in the US, since inflation has begun to fall from the previous year’s low level. The USD price will adjust as a result.

On the other hand, deposit interest rates at some commercial banks in Vietnam have showed signs of cooling down, down from 0.1 to 0.5 per cent per year compared to the end of 2022. Experts believe that interest rates cooled partly because of banks’ weaker demand to lure deposit money. Therefore, banks will not need to mobilise as much as at the end of last year.

Standard Chartered also forecasts USD-VND at 23,200 by the end of Q1 and at 23,500 for mid-2023, while its H2-2023 forecasts remain unchanged. An improving current account balance backdrop and tourism recovery is likely to be supportive of the VND, Standard Chartered said, while FX volatility will remain elevated, and a wider trading band will allow for more FX flexibility.

According to Standard Chartered’s FX Alert, the combination of an earlier-than-expected China reopening, signs of softening inflationary pressures in the US, and one-way market positioning have led to a sharp rally in ASEAN currencies versus the USD in recent months.

However, the performance has diverged significantly in the region. The bank expects such uneven performance to lead to relative-value opportunities within the region against a backdrop of a more nuanced outlook for USD. Standard Chartered revised its FX forecasts lower to consider positive themes that have emerged in recent weeks, particularly the reopening of China.

– VNN –