According to Mr. Dinh Duc Quang – CEO of Treasury, UOB Vietnam, here is a comment on the exchange rate and interest rates in the coming time.
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Mr. Dinh Duc Quang – CEO of Treasury, UOB Vietnam
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UOB’s recent quarterly report forecasts that inflation will continue to trend slightly upward in the context of main components in the consumer price index calculation basket such as fuel prices, food, medical expenses. education, exchange rate… are continuing to face upward pressure. Hot developments globally such as war conflicts, sea transport risks, climate change are the main causes putting pressure on inflation. Inflation in Q2 will continue to fluctuate in the range of 3.5-4% and inflation for the whole year is forecasted at 3.8% in 2024.
Mr. Dinh Duc Quang said that the saving interest rate is at a record low level and may have bottomed out in the overall assessment of the return level of this least risky investment channel compared to inflation, exchange rate, demand capital in the economy. Although economic activities have improved in Q1/2024, especially the recovery in foreign trade activities, other factors such as industrial production, domestic consumption, retail, new orders still need more clear data in the coming time to confirm the trend of stable growth; thereby supporting the confidence of businesses and investors to boldly access credit, expand production and consumption investment. Looking at longer data before the COVID-19 pandemic, it also shows that domestic credit often tends to increase very slowly in Q1 and only starts to recover in Q2 of each year. From that point of view, saving interest rates will possibly increase again by 0.5%-1% on different terms from the second half of 2024.
Recent reports from UOB show that the US economy continues to grow steadily, especially the index of new jobs and wage increases, along with persistent inflation, continue to raise questions about the clear timing of when the US Federal Reserve (Fed) will cut. interest rate. The market still has strong expectations that the Fed will cut interest rates two to three times in 2024; but it is clear that interest rates USD will continue at higher levels for a longer time; enough time for the Management Agency to bring inflation back to a trajectory below 2% per year. The interest rate on 10-year US government bonds is still at a very high level of around 4.5%, showing that investors still believe that interest rates USD will not decrease too quickly in the short and medium term.
With the interest rate USD anchored at such a high level, it will put pressure on almost all major currencies in the world and in the Southeast Asian region, which depends heavily on foreign trade activities with the US as well as attracting capital investment from the US and world’s leading economies. Looking at the consolidated data below of the currencies from the largest and most important economies in global trade and investment, we will see that the price decrease of about 3% from the beginning of 2024 to now of the dong is in the general trend and at the average level.
UOB’s report shows that the dong forecast, as well as other currencies, is likely to increase again compared to USD in the second half of 2024 when interest rates USD could be cut while interest rates VND will have almost no ability to decrease further and will increase again. UOB also expects the domestic economic recovery to be stronger, especially from the manufacturing and retail consumption sectors, which will support interest rates. VND is approaching a more reasonable level compared to overall growth, inflation in a developing market like Vietnam.
