The Federal Reserve (Fed) has cut interest rates for the second time this year, a reduction of 25 basis points. Economist Dr. Nguyen Tri Hieu attributed this move to the core inflation rate falling to 2.6% and expected to reach the target of 2% this year, alleviating the Fed’s concerns about inflation.
Despite the Fed’s rate cut, the USD Index remains high, reaching 104.95 on November 8th, indicating the strength of the US dollar. This strength can be attributed to Donald Trump’s reelection as President. As a result, the Vietnamese dong has depreciated against the dollar, with the current exchange rate at 25,470 VND/USD.
“Trump’s victory has boosted the financial markets, and the value of the US dollar has risen compared to other currencies. Logically, a Fed rate cut should weaken the dollar, but Trump’s reelection has kept it strong,” said Dr. Hieu.
“As a consequence, the Fed’s rate cut has not significantly impacted the VND/USD exchange rate, failing to excite the Vietnamese stock market. In fact, the Vn-Index has declined over the past two days. With the VND/USD rate still high, imports remain expensive, continuing to fuel inflation in Vietnam,” he added.
Illustration: Government Portal
Meanwhile, Professor Dinh Trong Thinh offered a different perspective, suggesting that the Fed’s rate cut will primarily have positive effects on the Vietnamese economy.
With Trump’s reelection, investors expected the dollar to appreciate, the economy to grow, and stocks to perform well. However, the rate cut has led to a depreciation of the dollar, easing the pressure on the VND/USD exchange rate and making investments in Vietnam more attractive.
Lower interest rates in the US may also encourage investors to seek opportunities in emerging markets like Vietnam, which can offer higher returns.
Additionally, the rate cut provides the State Bank of Vietnam (SBV) with an opportunity to consider reducing interest rates in the floating market, thereby supporting economic development.
“However, there may be some negative impacts, such as a potential decrease in Vietnam’s exports due to a slowdown in the US economy, reducing the demand for Vietnamese goods,” warned Mr. Thinh.
Nevertheless, experts believe that the Fed’s 0.25% rate cut, bringing the target range to 4.5%-4.75%, will have a negligible impact on Vietnam’s economy. They are confident that the SBV has the necessary tools to manage the exchange rate effectively, ensuring stability in the foreign exchange market.
