Hanoi (VNA) – The Vietnam dong is expected to fall to 25,600 VND per US dollar in the second quarter of 2024, and then to 24,800 VND in the final quarter of the year and 24,600 VND in the first quarter of next year, according to experts from the United Overseas Bank (UOB).
During roundtable discussions, themed “Market Outlook and Investment Strategy” in Ho Chi Minh City on May 23, Managing Director of the Currency Business Division at UOB Dinh Duc Quang said that the US Federal Reserve (Fed) maintains high fund rates of above 5%, which are exerting pressure on most major global and Southeast Asian currencies, including the Vietnamese dong.
Abel Lim, head of Wealth Management, Advisory, and Strategy at UOB, said that a potential Fed rate cut later this year could reduce dollar strength and aid the recovery of the dong.
Despite expectations of a cooling exchange rate, experts advised businesses to use risk-hedging tools and carefully consider foreign currency loan terms.
“Increased inflation this year has signalled the Fed to maintain high interest rates longer. Rate cuts are expected only when inflation slows to 2%. This scenario has strengthened the dollar, weakening Asian currencies, including the Vietnamese dong,” Lim said.
However, UOB anticipated that the Fed will cut rates twice this year, in September and December, while the State Bank of Vietnam may keep rates steady.
This could reduce dollar strength and allow the dong to recover to the VND24,000 per dollar threshold by the end of 2024. UOB’s report forecast a potential appreciation of the Vietnamese dong and other currencies against the dollar in the second half of 2024 if Fed rates are cut. Vietnamese dong interest rates are unlikely to decrease further and may rise again.
Regarding interest rates, Quang said that savings interest rates are at a record low and have hit bottom when assessing the income that the least risky investment channel generates compared to inflation, exchange rates and capital demand in the economy.
Economic activities have improved in the first quarter of 2024, especially the recovery in foreign trade activities, other factors such as industrial production, domestic consumption, and retail sales.
New orders still need more clear data in the coming time to confirm a solid growth trend, thereby supporting confidence for businesses and investors to access credit, expand production investment and consumption.
It is expected that savings rates to increase by 0.5-1.0 percentage points across different terms from May to the end of 2024, Quang said.
Key factors underpin Vietnam’s positive outlook for this year ahead, which is strong domestic demand, said Abel Lim.
Manufacturing and export activities have been robust, with exports boosted by demand for electronics and phones. A recovery in the semiconductor cycle, stable growth in China and Asia, and potential rate cuts by major central banks in the coming months will also be positive for Vietnam’s economy.
Foreign direct investment (FDI) inflows, particularly in the manufacturing and processing sectors, reflect sustained investor confidence in Vietnam’s business environment. Moreover, the global supply chains have shifted as investors want to reduce their reliance on China.
In addition, investments in infrastructure projects and digital transformation are likely to contribute to Vietnam’s long-term growth and competitiveness. Lim reaffirmed the bank's 2024 growth forecast for Vietnam at 6%.
Quang said that the two driving factors for Vietnam's economic growth in the remaining time of this year are interest rate cuts and consumer demand. These factors accelerated exports and the economic recovery of China – a leading trade partner of Vietnam.
Regarding inflation in 2024, Quang forecast inflation to rise slightly in the context that the main components in the basket of goods calculating the consumer price index such as fuel, food, education fees, and exchange rates are increasing. Global concerns such as conflicts, shipping risks, and climate change are the main causes of inflationary pressure.
However, Vietnam also has some favourable conditions in controlling inflation including the autonomous structure of domestically produced essential goods and experience in coordinating monetary and fiscal policies.
The UOB forecast that the inflation will continue to fluctuate around 3.5%-4% in the second quarter and 3.8% for the whole year, Quang said./.
