Uncertainty Surrounds Vietnam’s Monetary Policy and Exchange Rates
The director of the State Bank of Vietnam’s monetary policy department, Pham Chi Quang, has expressed concerns about the uncertainty surrounding the country’s monetary policy and exchange rates in the coming time. This uncertainty stems from various factors, including the pressure from the low VND interest rate policy, the Fed’s hesitation, and the U.S. administration’s tax policy.
Current Economic Situation
Since the beginning of 2025, the DXY index, which measures the strength of the USD against a basket of major currencies, has decreased by about 10%. However, the VND has still depreciated by about 2.7-2.8% in the first half of the year. This depreciation is caused by the requirement to maintain a low VND interest rate to support GDP growth, resulting in a negative VND-USD interest rate gap.
Impact of Trade Balance and Cash Flow
Despite having a trade surplus, the exchange rate is still under pressure due to cash flow issues. Foreign investors are net buyers on the stock markets in other countries in the region, while in Vietnam, they are net sellers. This has led to a rapid withdrawal of foreign capital, especially in the stock market since 2024. Although the balance of payments is still positive, the exchange rate remains under pressure.
External Factors Affecting Exchange Rates
The U.S. announcement of a reciprocal tariff schedule applicable to 14 countries, including major trading partners in Asia, is expected to have a significant impact on global FDI flows and exchange rates in developing economies, including Vietnam. With a highly open economy, Vietnam is particularly sensitive to policy changes from major export markets, especially the United States.
The Role of the Fed and Interest Rates
The Fed’s decision to delay interest rate cuts has also contributed to the uncertainty surrounding exchange rates. Although inflation in Europe and Japan is decreasing, inflation in the U.S. remains unstable. This has led to a postponement of global monetary easing, causing the USD to maintain its strength and attract capital flows from emerging markets.
Conclusion
In conclusion, Vietnam’s monetary policy and exchange rates are facing significant uncertainty due to both internal and external factors. The pressure from the low VND interest rate policy, the Fed’s hesitation, and the U.S. administration’s tax policy are all contributing to this uncertainty. As the global economic landscape continues to evolve, it is essential for policymakers to closely monitor these factors and make informed decisions to maintain economic stability and support growth.
