Sir, how might the Fed keeping interest rates unchanged but leaving open the possibility of a December rate hike impact exchange rates, capital flows, and interest rate levels in Vietnam from now until the end of the year? What are the biggest pressures to watch out for?
In my opinion, the impact will first affect exchange rates and market expectations, then spread to domestic capital flows and interest rates. Investors don't need to wait for the Fed to actually raise interest rates; they can already adjust their portfolios based on forecasts of future USD yields.
However, it's important to distinguish between a market-anticipated decision and a policy surprise. A Reuters poll prior to the meeting showed that 94 out of 100 experts predicted the Fed would keep interest rates unchanged in October, while all respondents predicted a December increase. This is the survey group's expectation, not a commitment from the Fed, but it suggests that further tightening had been considered beforehand. Therefore, if the Fed raises rates as expected in December, the market reaction could differ from a more significant increase, or signal further increases throughout the following year. The deciding factor is not just a 0.25 percentage point increase, but also how much the market will have to adjust to what was anticipated.
Economics
For Vietnam, the most notable pressure is the exchange rate, especially when expectations of a stronger USD coincide with year-end foreign currency payment demands. If importing businesses buy USD earlier than necessary, while exporting businesses delay selling foreign currency, the supply-demand pressure could increase even if actual payment obligations haven't changed accordingly.