On March 16, the FED decided to increase the basic interest rate by 0.25 percentage points and is expected to continue to increase in the next few months in response to record-high inflation.
This is the first time the Fed has raised the basic interest rate since the Covid-19 epidemic broke out in early 2020. The last time the US central bank raised interest rates was at the end of 2018.
According to experts of ACB Securities (ACBS), if inflation does not decrease by mid-2022, the Fed is likely to raise interest rates more by the end of 2022 along with accelerating its quantitative tightening program.
Analyzing the impact of this event on Vietnam’s economy, a recent report by ACB Securities Company (ACBS) said that the monetary policy management of the State Bank of Vietnam in 2022 will not be greatly affected by the Fed’s interest rate hike.
Accordingly, experts estimate that interest rates in Vietnam will likely increase in the last 6 months of 2022, up to a maximum of 0.5%. According to the analysis report, the State Bank of Vietnam still maintains the trend of continued expansion to support socio-economic recovery and development after the Covid-19 epidemic if three factors converge.
First, the Fed will only raise interest rates with a maximum total increase of 2%, but the Fed will not yet begin a program of quantitative tightening (i.e. withdrawing money from the system).
Second, Vietnam’s inflation rate remains at 4%, and Vietnam’s monetary policy tends to continue to be expanded to support the economic recovery.
Third, exports are still the main driver of economic growth of the country as manufacturing activities gradually recover and export turnover is expected to continue to increase in the context of the gradual recovery of the global economy and a long list of Free Trade Agreements (FTAs) have been reached so far such as EVFTA, UKVFTA, CPTPP.
According to experts of ABCS, the main impact of the Fed’s interest rate hike mainly affects foreign capital flows. In the short term, with the history of other Fed rate hikes, capital flows to emerging markets will always reverse and Vietnam is no exception.
“We expect capital outflows from the Vietnamese market will mainly come from the financial market. With a good macroeconomic foundation and inflation maintained at less than 4%, Vietnam will continue to be a destination. to the investment of FDI enterprises, especially in the manufacturing industry”, the ACBS report said.
Accordingly, the report has pointed out three factors supporting ACBS experts’ expectations. First, exports are expected to maintain strong growth. Besides, there are abundant foreign exchange reserves (estimated to reach USD 111 billion by the end of September 2021).
Finally, disbursed FDI is gradually recovering and registered FDI in Vietnam is expected to continue to increase, after Vietnam has brought the Covid-19 outbreak under control on a national scale and opened up its economy, especially in the industrial production sector, thanks to the long list of Free Trade Agreements (FTAs) that Vietnam has reached up to this point.
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Source: Vietnam Insider