- The State Bank of Vietnam issues the fourth interest rate reduction decision
On June 16, 2023, the State Bank of Vietnam (SBV) issued several decisions to adjust interest rates. These decisions aim to lower the interest rate level for the fourth time, including:
- Decision No. 1123/QD-NHNN;
- Decision No. 1124/QD-NHNN;
- And Decision No. 1125/QD-NHNN.
This interest rate reduction initiative brings about several positive impacts on the Vietnamese market:
- Supports production and business recovery;
- Especially supports the recovery of service, retail, and consumer sectors;
- Provides motivation for other sectors to gradually recover;
- Helps restore market confidence in better economic prospects.
- The banking system can provide medium and long-term funding for businesses, support bond and securities market recovery.
- The current economic situation and the impact of the interest rate cut on the foreign exchange market.
The current economic market has two major concerns to consider as follows:
Firstly, currently the economies of most importing countries are facing difficulties. This leads to restricted spending and a significant decrease in export orders. Additionally, Vietnam’s lack of preparation for the “green economic wave” and green exports also contributes to the decrease in export orders due to a lack of green certifications.
Secondly, exports and trade surpluses are declining as imports decrease more than exports. Since Vietnam’s exports rely on imports, it is predicted that the business cycle in the near future is at risk of decline due to the sharp decrease in imports.
The trade deficit at a low level can transition to a high level. In addition, FDI also shows signs of decline, leading to an overall trade deficit. With this situation, the exchange rate of the Vietnamese dong may be affected due to the economic structure.
In theory, lowering interest rates will cause the value of the Vietnamese dong to decrease. However, this is not a major concern as currently the US dollar is also decreasing significantly worldwide.
- Forecast for the exchange rate at the end of 2023.
With the current trend, the USD is weakening compared to other currencies. This trend has a significant impact on Vietnam. We are always concerned about international inflation, as domestic liquidity can devalue the Vietnamese dong. However, currently, these concerns are almost negligible.
The Vietnamese dong has depreciated by about 3-4%. It is worth noting that Vietnam is not included in the list of currency manipulating countries published by the United States. Therefore, Vietnam currently ensures factors such as:
- A moderate trade surplus with the US (15 billion USD).
- A balance of payments deficit not exceeding 3% of GDP.
- Foreign currency reserves not exceeding 2% of GDP.
With this situation, the foreign exchange market will not experience significant fluctuations in exchange rates by the end of 2023.
(Reference: Vietnam Securities Investment Newspaper, June 26th, 2023)
Harley Miller Law Firm “HMLF”
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