How does the Fed interest rate increase affect the interest rate trend of Vietnam?

This is the first time the Fed has raised interest rates since 2018, due to fears of record-high inflation. Analysts said that although this event may cause capital flows to withdraw from emerging markets, the impact on Vietnam is not large, with little impact on interest rate trends this year.

In a recent report for investors, experts of ACB Securities Company (ACBS) said that they continue to hold the view that the management monetary policy belong to State bank in 2022 so as not to be greatly affected by the Fed’s interest rate hike. The State Bank of Vietnam still maintains the trend of continued expansion to support socio-economic recovery and development after the COVID-19 epidemic.

However, the attached condition is that the FED will only raise interest rates with a maximum increase of 2% and the FED has not started the program of Quantitative Tightening (ie, withdrawing money from the system). At the same time, Vietnam’s inflation rate remains at 4%, Vietnam’s monetary policy tends to continue to be expanded to support the economic recovery and exports remain the growth engine. main economy of the country.

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. Vietnam, with its good macroeconomic fundamentals and inflation maintained at below 4%, will continue to be the highlight. to the investment of FDI enterprises, especially in the manufacturing industry”, the ACBS report said.

As for commercial banks, at the recent general meeting of shareholders, answering questions from shareholders when assessing the impact of the Fed’s interest rate hike on bank profits, said Mr. Han Ngoc Vu, General Director of the Bank. Vietnam International Trade Joint Stock Company (VIB) believes that this will basically affect the cost of capital in the international market. Currently, VIB is one of the banks that aim to mobilize capital internationally, with an interest rate that is said to be more attractive and more stable than the domestic residential deposit market.

At the moment, the pressure on capital costs is also pressing on some banks when deposit interest rates in the market are showing signs of increasing.

Statistics of SSI Securities Company show that deposit interest rates for businesses have inched up at some big banks with an increase of 20 basis points for terms over 6 months. With increasing inflationary pressure, SSI believes that the interest rate level has bottomed and the rate of interest rate increase in the coming time will depend on the recovery speed of the economy and inflation.

From an expert’s point of view, Associate Professor, Dr. Tran Hoang Ngan, Director of the Ho Chi Minh City Institute for Development Studies, said that the increase in deposit interest rates is not a trend but depends on the level of liquidity. each commercial bank, plus inflation and psychological factors.

However, with the State Bank’s view of managing monetary policy in a stable direction and preparing to deploy a 2% interest rate support package for businesses, if the lending interest rate increases, the support will no longer be available. meaningful.

“In the current context, the State Bank should regulate interest rates stably, not letting commercial banks tend to increase lending rates, because this will affect the recovery process of businesses that are currently recovering. At the same time, soon implement detailed instructions for businesses to access the fiscal package supporting 2% interest, so that businesses can overcome difficulties and challenges and keep the price level unchanged. for sale”, suggested Associate Professor, Dr. Tran Hoang Ngan.

It is known that in the context that inflation is likely to increase due to rising input costs, it is putting a lot of pressure on the management of monetary policy. However, in the context of the complicated development of the COVID-19 pandemic, many businesses are still facing many difficulties. In addition to the chain effect from the increase in gasoline prices, leading to an increase in the cost of most input materials of enterprises, it is greatly affecting the production activities of enterprises.

Therefore, experts believe that, regardless of the knock-on effects of the Fed’s interest rate hike, the State Bank’s monetary policy this year will still be implemented in the direction of supporting business recovery. They may use tools through the open market, such as buying foreign exchange and injecting dong into the market to support liquidity or raise the ceiling on credit growth for commercial banks.

ACBS estimates that interest rates in Vietnam will likely increase in the last 6 months of 2022 and up to a maximum of 0.5 percentage points. This is also the maximum interest rate increase this year, which is considered by many analysis groups. Analysts believe that any monetary tightening action (if any) will only take place from the third quarter of 2022 at the earliest and the interest rate hike will then be very limited, at 0.25 – 0.5 point %.

In fact, in a recent reply to voters’ petitions, the State Bank also sent a message about maintaining the loose monetary policy this year. Specifically, the State Bank is currently developing an Action Plan to implement Resolution 11/NQ-CP of the Government on the Socio-economic Development and Recovery Program. Accordingly, it will strive to reduce lending interest rates by 0.5 – 1 percentage point in 2022 and 2023, especially for priority sectors.

In addition, the State Bank also said that it will continue to direct credit institutions to try to reduce operating costs to further reduce interest rates; continue to review lending mechanisms and procedures to be more suitable to market realities and new situations, but still ensure credit quality and system safety to support businesses to get favorable bank loans. contribute to removing difficulties for production and business activities.

* Invite readers to watch programs broadcast by Vietnam Television on TV Online and VTVGo!