VN Express is reporting on the European Central Bank’s interest rate rise and what it means for the EU. There are, however, a couple of key points missing with respect to what it might mean for Vietnam.
Firstly rising interest rates in the EU is likely to impact demand for non-essential goods like brand name clothing, appliances, or electronics. Vietnam, which is a key manufacturer of these goods, may see its exports impacted. Vietnam’s exports have suffered this year under slowing demand in key export markets. This is likely to continue.
Secondly, this is likely to add to pressure on the Vietnamese dong. The local currency’s devaluation against the greenback has been well-documented, however, it’s also been slowly devaluing against the euro too. As the VND falls, Vietnam’s exports become cheaper but its imports become more expensive–these imports are things like coal and petrol that can push up the cost of consumer goods putting additional pressure on inflation.