Although the VND/USD exchange rate has increased sharply by nearly 5% in the first months of the year, experts believe that the pressure to increase the exchange rate will gradually ease in the coming months.
Speaking at the Vietnam Wealth Advisor Summit 2024 with the theme “Adapting to the changes”, Dr. Truong Van Phuoc, former Acting Chairman of the National Financial Supervisory Commission, said that exchange rates are not a matter of concern in the near future. The event was organized by Investment Newspaper in collaboration with the Vietnam Wealth Advisors Community (VWA) on June 6, 2024.
According to experts, the exchange rate will not exceed 26,000 VND/USD because the US Federal Reserve (Fed) is likely to cut interest rates in July 2024 or September 2024 right before the US Presidential election and expectations of a depreciation of the "greenback" in the market are increasing. Therefore, the USD index will fall to 100 points and Vietnam will not need to raise interest rates to stabilize the exchange rate.
“The USD will depreciate at least until 2027 and the USD Index will hover around 95-105 points, not increasing any further. The Fed's interest rate will drop to 2.75-3% in the next 3 years. Accordingly, the VND should depreciate at a rate approximately equal to the inflation rate. The interest rate level should revolve around the CPI plus a margin of about 3-4%,” Mr. Phuoc analyzed.
Regarding the depreciation of nearly 51.3 billion VND since the beginning of the year, Mr. Phuoc said that if considering the balance (balance of payments, inflation, etc.), VND should not have depreciated 51.3 billion VND in one quarter.
“If we consider the exchange rate as the intestines, then high-dose antibiotics are the interest rate. If we push interest rates up to treat inflation and exchange rates, it is too simple, but the price to pay is that the economy needs cheap capital. What I want to say is do not use high-dose antibiotics to treat intestinal diseases,” this expert likened.
However, Mr. Truong Van Phuoc noted that it is necessary to re-evaluate the USD 0% interest rate policy, because this is one of the reasons why Vietnam is always under pressure with the exchange rate.
Sharing the same view, Dr. Can Van Luc, Chief Economist of BIDV, Member of the National Financial and Monetary Policy Advisory Council, said that the pressure on exchange rates for Vietnam has also "gradually decreased".
Specifically, according to Mr. Luc, the fact that the USD interest rate is anchored at a very high level of over 5% has put pressure on devaluation of almost all major currencies in the world and in the Southeast Asian region, including VND. However, in the past month, the USD has lost more than 1.5% and is likely to continue to decrease in the coming months when the Fed adjusts interest rates. This means that other currencies will start to increase again.
“Accordingly, the VND will only depreciate by about 3.5-4% in 2024,” Dr. Luc predicted.
Also discussing at the forum, Mr. Tong Quoc Dat, Head of Senior Market Analysis at Exness Investment Bank, predicted that the USD may not fall as sharply as expected. According to him, the US economy is still much stronger than Europe or other G7 countries. So even if the US lowers interest rates, Europe will do the same, even at a faster pace.
“Because EU inflation is more stable, Europe is more likely to reduce interest rates faster and more strongly than the US, which will inadvertently push the strength of the USD up. In addition, the EUR also plays a big role in the USD Index (DXY). So if the ECB makes such a move, the USD still carries the risk of strengthening,” Mr. Dat stated his opinion and said that Vietnam still needs to have provisions for this “variable”.
Regarding the election factor, Mr. Dat said that if former President Trump enters the White House, policies on tariffs and immigration could be factors that cause inflation to rise again and affect the Fed's interest rate cut roadmap in 2025, helping the USD to "maintain a high position and not completely collapse".
Source: VnEconomy
