Inside a BIDV transaction office (Source: VNA) Hanoi (VNS/VNA) - The US Federal Reserve(Fed)’s latest rate cut will benefit commodity and equity markets in the shortterm, according to specialist Nguyen Tri Hieu.
The US central bank on July 31 announced its firstrate cut since 2008 by 25 basis points to the range of 2-2.25 percent.
The rate cut would increase the value ofinvestment into equity and commodity assets as the US dollar was weakened,encouraging international investors to purchase more local assets, Hieu said.
The rate cut was among reasons for US stocks todecline on July 31. However, the main reason was still worries about US-Chinatrade tension, which has remained unsolvable, he added.
In the short term, the rate cut may benefit Vietnam’seconomy and equity assets, he said, adding gold would go up and the real estatemarket would be stabilised.
The Fed’s rate cut may allow Vietnam’s banks tolower their interest rates in some priority sectors, but the average level maynot decline further, analysts have said.
On August 1, commercial banks in Vietnam cutinterest rates on VND loans in the Government’s priority sectors for the secondtime this year to support the business community.
Vietcombank, BIDV, VietinBank and Techcombankreduced their short-term interest rates by 0.5-1 percent and capped them at5.5-7.5 percent.
Lending rates in Vietnam were high, therefore, theFed’s small rate cut would not have a direct and immediate impact on the localcredit market, Hieu said.
In the long term, the VND would notdepreciate, he said. “Vietnam depends on a weak VND to support itsexports. As the Fed’s rate cut weakens the US dollar, the VND may notbe devalued further so that it could stabilise.”
According to specialist Le Xuan Nghia, the Fed’srate cut helps increase the supply of the dollar to the market and devalue thegreenback, making the VND and other currencies weaken furtheraccordingly. That means the VND/USD exchange rate is unchanged but Vietnameseexports may be hurt if the VND weakens too much against othercurrencies.
If the Fed continues loosening its interest rates,other central banks can do the same to depreciate their currencies. In thatcase, the supply of cash increases and global long-term inflation occurs,requiring the Vietnamese Government to work on detailed solutions to deal withit.
Accordingly, the VND is forecast to gain 1-3 percentin value against the US dollar in the remaining months of 2019 given theunpredictability of the global markets.
As the Fed chairman Jerome Powell gave no cluesabout further rate cuts this year, central banks of emerging markets must bemore cautious with their monetary and interest policies in the future,according to Bao Viet Securities Co (BVSC).
A number of central banks, including Vietnam’s,have lowered their lending rates to counter a worldwide economic slowdown sincethe beginning of the year when the Fed signalled it may lower interest rates.But after August 1, those central banks have halted their monetary looseningplans until further announcements by the Fed instead of acting in advance.
Though Vietnamese banks recently cut rates toboost their lending volumes, the practical impact may not be enormous,BVSC report said.
Unlike other central banks, the State Bank ofVietnam (SBV) tries to control the total cash loaned to the market and thetotal savings and deposits. Meanwhile, the connection between interbankinterest rates and market interest rates and the liquidity of the bankingsystem, despite remaining high on low interbank interest rates, doesn’t meanlenders have sufficient cash on the market. Cash liquidity among banks ishighly differentiated, making deposit and saving interest rates still high,thus lending rates will not be reduced much.-VNS/VNA
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