Experts indicate that the State Bank of Vietnam (SBV) will find it difficult to further ease monetary policy due to increasing pressure on the USD/VND exchange rate.
In global markets, despite the Federal Reserve’s 25-basis-point rate cut earlier this month, it hasn’t weakened the dollar’s trajectory. Instead, the Dollar Index (DXY) rose to nearly 107 points on November 15, reaching its highest level in over a year.
Analysts predict that the dollar is likely to appreciate given the possibility of Trump’s re-election as U.S. President and the Fed’s slower rate cut pace, which could put significant pressure on the State Bank of Vietnam’s exchange rate policy.
In fact, the rising Dollar Index has recently created upward pressure on the USD/VND exchange rate. The State Bank of Vietnam adjusted the VND/USD reference rate up by 8 dong to 24,298 dong per dollar on November 15.
Dinh Duc Quang, Head of Currency Trading at United Overseas Bank Vietnam, predicts that the State Bank of Vietnam will not adjust policy rates such as refinancing rates, rediscount rates, or deposit rate caps, but will continue to flexibly use Treasury bill rates and Open Market Operation (OMO) rates to maintain short-term (three-month) deposit rates around 3-4% annually and long-term (12-month) deposit rates around 5-6% annually.
Ngo Dang Khoa, Head of Foreign Exchange, Capital Markets and Securities Services at HSBC Vietnam, also indicates that further reducing deposit rates will face difficulties.
Banking expert Dr. Nguyen Chi Hieu shares this view, pointing out that market deposit rates and central bank policy rates will be difficult to reduce further in the year’s final months, as credit growth tends to be strong in Q4 2024 while deposit growth remains relatively slow. Additionally, non-performing loans in the banking sector are trending upward.
Given the very limited room for monetary policy easing in Vietnam, experts suggest utilizing remaining fiscal space to support economic growth.
Dr. Nguyen Huu Huan, lecturer at Ho Chi Minh City University of Economics, states that exchange rate pressure combined with year-end credit demand increases may lead to rising interest rates. He notes that while the State Bank of Vietnam is implementing a relatively loose monetary strategy to support the economy, policy adjustment space is now very limited. Therefore, support from fiscal policy, particularly measures such as simplifying administrative procedures and accelerating public investment spending, is essential.
Key Points Summary:
- Vietnam’s monetary policy difficult to further ease.
- Strong dollar index creating pressure on Vietnamese dong.
- Central bank expected to maintain current policy rates.
- Limited room for deposit rate reduction.
- Year-end credit demand may push rates higher.
