The Fed decided on Wednesday to raise the target overnight interest rate by 25 basis points to a range of 0.75% to 1% after reports on steady economic growth, strong job gains and confidence that inflation stateside is rising to the central bank’s target, according to Reuters.

 

The greenback did not appreciate against other major currencies and even Vietnam dong as expected before the Fed’s rate move, falling to five-week lows compared to euro, and two-week lows to yen and sterling.   

 

In Vietnam, Vietcombank and BIDV on March 16 bought the dollar at VND22,730 and sold it at VND22,800, down VND55 over Wednesday morning, dantri.com.vn. The two major banks in the country adjusted up the dollar/dong exchange rate by an additional VND10 in the afternoon to VND22,740 and VND22,810 respectively.

 

VietinBank quoted the buying and selling prices of the greenback at VND22,725 and VND22,800, representing respective decreases of VND60 and VND55. ACB revised down the exchange rate by VND60 to VND22,720 for buying and 22,810 for selling.

 

Techcombank quoted lower buying and selling prices of the dollar on March 16 at VND22,720 and VND22,810, down VND40 and VND55 over the previous day. Meanwhile, Sacombank and other banks sold the greenback at VND22,800. 

 

The State Bank of Vietnam on March 16 lowered the dollar/dong reference exchange rate by VND10 compared to the rate on Wednesday morning to VND22,252.

 

With a band of 3% on either side, banks in Vietnam are allowed to trade the dollar at the highest price of VND22,920 and the lowest of VND21,584.

 

Pham Hong Hai, CEO of HSBC Vietnam, said the dollar depreciation against Vietnam dong was a common trend as it fell against other currencies in Asia. The Fed rate hike would not leave an immediate impact on Vietnam dong as it was foreseeable and the Fed was expected to apply higher rates.

 

The Fed also unveiled its outlook for two additional rate increases this year and three more in 2018. Hai said the foreign exchange market would be impacted if Vietnam was unable to find proper measures to ease the pressure of the dollar rate rises.

 

He said other currencies in Asia are projected to devalue against the dollar in the first half of this year as the U.S. economy is recovering. As an export-dependent economy, Vietnam should attend to movements of other Asian currencies to adopt appropriate measures to maintain the competitiveness of its export products.

 

An economic expert said the Fed rate hike would result in higher costs of loans and capital would outflow from developing markets into the U.S. to enjoy increased interest rates, piling pressure on the devaluation of currencies in these markets.

 

The Fed rate hike is likely to impact incoming remittances to Vietnam, where the interest of deposits in the dollar is kept at 0%.