It is expected that foreign investors will stop withdrawing capital from Vietnam and buy more Vietnamese shares.

Economists’ predictions have come true: the US Federal Reserve (FED) has decided to keep the Federal Funds Rate (FFR) unchanged after a 2-day meeting which ended at the dawn of November 2, Hanoi time.

Since March 2022, the FED raised the FFR 11 times to a 22-year peak of 5.25-5.5 percent.

The move showed that the FED doesn’t intend to strengthen monetary policy tightening in an effort to support the recovery of the national economy and avoid adverse effects to the US's labor market, though the inflation rate is still high.

According to the FED, economic activities in the US grew strongly in the third quarter and the GDP growth rate of 4.9 percent has been reported for the third quarter.

The FED decided not to raise the interest rate amid a weakening labor market for the third consecutive month with only 113,000 jobs created in October, which was much lower than expected. This was the 12th consecutive month that wages for Americans decreased. The war in Gaza Strip remains and the possibility of its expansion may affect the global economy.

The US bond yield recently surged to the ‘dangerous area’ of 4.8-5 percent per annum, worrying Wall Street. Meanwhile, inflation decreased significantly compared with 9.1 percent in 2022. The US core inflation rate in September was 3.7 percent, which was higher than the targeted 2 percent, but lower than previous months.

The discounts of US bonds and negative impact on global and US financial markets were also the reasons behind the decision to stop raising FFR. The US dollar has appreciated sharply, while the currencies of other economies, including Japanese yen, have depreciated.

Meanwhile, the quantitative easing (QE) program continues with net withdrawal of $60 billion a month, predicted to last until August 2024.

Vietnam’s exchange rate

The global financial market has quickly become stable following the US’s move.

The DXY, which measures fluctuations of dollars in comparison with six major currencies in the world, dropped from 106.8 points to 106.3 points on November 2 morning.

Prior to that, economists warned that if DXY (US dollar index) reaches 110 points, the State Bank of Vietnam (SBV) will face difficulties and may have to apply more measures to intervene in the market, including sales of forex reserve as it did in the fourth quarter 2022.

The US stock market has also rebounded after a gloomy month. The Dow Jones index surged by 200 points after the US FED’s decision. S&P 500 and Nasdaq also increased sharply.

Meanwhile, crude oil prices have decreased very rapidly with WTI oil traded at $81 per barrel and Brent at below $85 despite the impact from the war between Israel and Hamas.

Huynh Minh Tuan, founder of FIDT, an investment consultancy and wealth management firm, commented that the FED’s decision will have positive influences on Vietnam in terms of the macroeconomy and monetary policy.

Tuan believes that pressure on the exchange rate may go down and the dollar price in the free market will return to below VND24,500 per dollar.

Also, according to Tuan, there are reasons for interest rates in Vietnam to stay at low levels and the situation will last a long time.

As for the stock market, once the exchange rate becomes stable again and the interest rates are curbed, foreign capital withdrawal will stop and foreign investors may shift from net sales to net purchases.

Meanwhile, investors are expected to calm down after a period of worrying about high exchange rates.

Analysts said stopping the interest rate hikes may help the world’s financial market, including Vietnam, become stable again, though there are still other factors that may affect the exchange rate, the inflation rate and the recovery of economies.

Manh Ha