The central bank believes that for an open economy like Vietnam, the sharp devaluation of the local currency will not help boost exports, but will do more harm than good.
Applauding the State Bank of Vietnam’s move to cut the prime interest rate, experts said the 0.25 percentage point cut, however, is relatively modest.
Businesses are optimistic about the prospects of the two largest export markets, the US and China, after the Chinese yuan for the first time fell from the ‘red line’ since 2008 to 6,9225 yuan per dollar.
For every one percent of the yuan depreciation against the dollar, the price of Vietnam’s yarn export to China would lose 3 US cents per kilogram, analysts estimate.
The US Federal Reserve has cut the FED Funds Rate by 0.25 percentage points to 2.5 percent because of the global economic growth slowdown, the trade tensions between the US and other countries, and low inflation rate.
A decrease in the US’ imports from China could present a good opportunity for Vietnam to fill in the gap.
International press late last week mentioned the possibility of the US adding Vietnam to the list of the countries it needs to monitor for currency manipulation.
In an effort to encourage exports in the context of the trade war, the Chinese central bank PBOC has set the yuan/US dollar reference exchange rate at 6.8365 yuan per US dollar, the lowest level since January 2019.
The dong/dollar exchange rate has fluctuated sharply in recent days after the US decided to impose tariff of 25 percent on $200 billion worth of imports from China.