Early morning on September 22, the US Federal Reserve (Fed) announced the decision to raise the target interest rate by 75 basis points for the third time this year to 3.00-3.25%. Immediately after this decision, the USD Index soared to nearly 112 points. The index has increased by about 16% this year.
This decision of the Fed caused the world financial markets to fluctuate wildly. While the USD rose to a record high, gold and stocks fell sharply.
In Vietnam, reacting to the Fed's decision, the SBV continued to increase the central exchange rate to a new record level of 23,316 dong, up 15 dong compared to the previous session. The foreign currency exchange rate at commercial banks was also adjusted to close to the threshold of 24,000 dong.
According to analysts, in the context of a simultaneous increase in interest rates around the world and the Fed's persistence with its stance of raising interest rates to control inflation, the pressure on the USD/VND exchange rate from now until the end of the year will be enormous. It is possible that the State Bank will have to continue to adjust the USD selling price.
In fact, the Vietnamese dong has maintained its devaluation against the USD at a low level, below 3% in the first 7 months of this year. However, since mid-August, the dong has continuously depreciated strongly against the USD.
Although the State Bank has introduced many policies in recent times, including selling a large amount of USD from foreign exchange reserves to support the supply of foreign currency in the market, the exchange rate has increased, the demand for USD in the system is still very huge. Thus, the SBV was forced to raise the exchange rate.
On September 7, the State Bank of Vietnam decided to raise the selling price of foreign currencies from 23,400 VND/USD to 23,700 VND/USD to stabilize the market. This shows that the State Bank accepts the dong to depreciate further in the context of difficulty in balancing money supply and demand in the system.
Previously, the SBV also had some strong moves in managing the exchange rate. It issued bills to regulate liquidity in the market, after a long pause. Accordingly, the State Bank issued 44.6 trillion dong of bills with a term of 7 days and the interest rate was raised to 4%.
Besides, from September 12 to 16, the SBV net withdrew a total of VND 59,600 billion through the open market channel. Along with that, it continued to use the interest rate bidding mechanism to net injection of about VND 58,000 billion through open market operations (OMO).
According to experts, the State Bank tends to regulate liquidity in the banking system to maintain a sufficient level in order to maintain an appropriate VND interbank interest rate and a reasonable difference with the USD interest rate, minimizing pressure on the exchange rate.
The first direction after the Fed's strong move, the Prime Minister said that recent events in the world have negatively affected exchange rates, interest rates, credit growth, currency value, and Vietnam's foreign exchange regulatory fund. The Prime Minister said that the State Bank must actively and flexibly operate the exchange rate tools, and study the direction of increasing deposit interest rates in the immediate future; stabilize or reduce lending rates; promote the implementation of the 2% interest rate support package for businesses; promote communication, avoid negative expectations.
Meanwhile, experts believe that the Fed's decision will have little impact on the Vietnamese banking system because the SBV has prepared in advance for the prospect of the Fed raising interest rates. Recently, domestic interest rates tend to increase. The overnight interest rate is at 4-5%, making a big difference with the USD interest rate at the moment.
Thanks to the flexible management measures of the SBV, the VND remains relatively stable, sticking to the target of not depreciating more than 3% this year.
In the coming time, the monetary authority should continue to maintain the current policy to keep inflation low. Besides, the SBV needs to make efforts to keep the exchange rate stable but flexible with the market.
In order to control inflation and maintain the exchange rate, it is imperative to raise interest rates. However, in the context of the economy recovering from Covid-19, the Government is directing to stabilize interest rates to support businesses. This is a difficult problem for the operator.
The pressure to raise interest rates in Vietnam is now very great when it is affected by both the Fed's interest rate hike and the high domestic credit demand. Moreover, at present, the imbalance between mobilization - lending has reached 7%, which will also put great pressure on the interest rate.
Forecasting interest rates in the last months of the year, some people think that deposit interest rates this year may increase from 1-1.5%. Lending interest rates will also increase, but there is a lag compared to the time of increase of deposit rates.
Complied by VietnamCredit