Following the U.S. Federal Reserve’s (Fed) short-term interest rate hike and possibly many more hikes this year and the next, Vietnamese banks have announced that they are always ready to cope with any monetary tightening stateside.

Local banks have announced that they are always ready to cope with any monetary tightening by the Fed 

The Fed last week raised its benchmark interest rate by a quarter of a percentage point to a range of 1.75-2% per year and signaled two more hikes this year and three hikes next year.

Do Ngoc Quynh, head of the treasury at BIDV, told Dau tu Chung khoan newspaper that monetary tightening has been happening more frequently in recent years, with one instance in 2015, another in 2016, three last year and potentially four this year.

According to Quynh, Vietnam has stable, positive economic prospects, as rated by agencies such as Fitch and Moody’s. The Vietnamese Government has been consistent with its economic restructuring efforts, maintenance of macroeconomic stability and growth quality enhancement. Besides this, hot money flows from foreign investors in Vietnam are much lower than those in other countries.

As a result, the impact of Fed’s monetary tightening on Vietnam will not be as large as it could be for other emerging countries, Quynh added.

Le Quang Trung, deputy CEO and head of the treasury at VIB, said shocks to the banking system have been reduced thanks to reliable forecasts.

In addition, banks have made adequate preparations, and the proportion of loans in US dollars is minimal compared with total outstanding loans. Therefore, there is no rate risk with regard to foreign currency lending, according to Trung.

Ngo Dang Khoa, head of markets at HSBC Vietnam, stated that rate hikes by the Fed do not significantly affect foreign direct investment flows but do affect short-term capital flows. The Fed’s long-term interest rate has remained at 2.8% per year, and major investors in Vietnam are mostly from South Korea and are typically not too sensitive to the interest rates in the United States.

Remittances to Vietnam may not be affected greatly, Khoa remarked. He added that the Fed’s higher rates may not necessarily lead to an instant savings increase.

Although the direct impact of the Fed’s rate hikes on Vietnam’s economy are considered negligable, according to Trung, there are still indirect effects, as smart money flows into emerging markets will be restricted. Increasing dollar interest rates will entail higher U.S. bond rates, and as such smart money will then flow back to home countries and will remain there until a better opportunity presents itself.

Besides the potential for further rate hikes by the Fed, unstable factors including trade disputes and geopolitical tensions could affect the Vietnamese economy and pose challenges to the Government’s management as well as the activities of banks.

Regarding inflation, exchange rates and interest rates, the monetary policies of the central bank need to remain flexible and should be closely coordinated with fiscal policies to control inflation, stabilize the forex market and build market confidence. 

Meanwhile, banks should stick to the management orientation of the competent authority and make appropriate adjustments according to analyses and forecasts, Quynh advised.

SGT