BUSINESSES FACE MOUNTING HARDSHIPS AMID RATE HIKE

A US Federal Reserve policy meeting is taking place this week on March 20 with the Fed forecast to retain the current base rate to deal with inflation concerns. The move will mean the US dollar remains at a high level, putting pressure on domestic currencies around the world.

Since the start of the year, Vietnam has seen the US dollar selling price inch up slightly from 1.6-1.7 per cent, whereas in other markets, it has risen by as much as nearly 4 per cent.

This has caused a detrimental impact to businesses who deal in large dollar-denominated amounts.

Dang Ngoc Hoa, chairman of Vietnam Airlines, said that if the exchange rate rose by 1 per cent, the company’s expenses could swell an additional $12.5 million.

"Therefore, if the exchange rate jumped 5 per cent, our expenses might increase by more than $62 million, so we need the exchange rate to remain stable with the lowest possible rate hike," said Hoa.

Similarly, Le Manh Hung, chairman of PetroVietnam, noted that the group currently faces VND38 trillion ($1.58 billion) in dollar-denominated outstanding loans.

"A rising exchange rate signifies soaring expenses for the group, creating concern for our production and business efficiency," said Hung.

For businesses in the steel, cashews, and garment and textile sectors, a more costly dollar has increased their imported material expenses.

According to the Vietnam Steel Association, their members are facing a spike in the price of imported materials such as steel scraps, fat coal, and steel ore.

Similar complaints have also come from the Vietnam Association for Seafood Producers and Exporters, and Vietnam Cashew Association (VINACAS).

Tran Huu Hau, vice-secretary of VINACAS, revealed that higher raw cashew cost has driven up prices for consumers, badly affecting their competitiveness.

"Even though exporters are covered when firms collect dollars from export contracts, the rate increase has significantly driven down profits," said Hau.

Than Duc Viet, CEO of Garment 10 Corporation (Garco 10), a significant member of the Vietnam National Textile and Garment Group, believes that the company’s production and business activities have rebounded this year thanks to a growth in order numbers.

"The higher exchange rate has led to a rise in the value of export orders, but we also face cost overruns associated with the import of input materials and machinery," said Viet.

Last year, Garco 10 saw a 21 per cent drop in profits, mostly thanks to the exchange rate, compared to 2022.

Tran Thi Ha My, senior analyst at Viet Dragon Securities JSC, predicts that the impact would be insignificant if the rate hike was in the range of 2-3 per cent, however, if the rake hike hits 4-5 per cent or more, firms could face even more hardship.

"Rate hike pressures could abate in the second half of this year amid abundant forex supply, and the possibility that the Fed might begin to cut interest rates. In addition, the State Bank of Vietnam's policy change on gold market management might also have a positive impact on the exchange rate," said My.

A report from the General Statistics Office shows Vietnam’s export value reached an estimated $24.8 billion in February, while imports were valued at $23.7 billion.

So far this year, domestic businesses have reported a trade deficit of almost $4 billion.

Source: VIR