Curting interest rates necessitates a compromise on the nation's foreign currency value
In the first half of 2025, the Vietnamese Dong (VND) experienced a notable depreciation against the US Dollar (USD). This article explores the key factors contributing to this trend and the measures taken by the State Bank of Vietnam (SBV) to address the situation.
1. **Interest Rate Policies**: To support economic growth, Vietnam maintained low interest rates. However, this reduced the attractiveness of the VND compared to the USD, making it less appealing to investors, especially when compared to the higher yields offered by the USD.
2. **US Trade Policies**: The implementation of increased import tariffs by the US raised concerns about potential negative impacts on Vietnam's exports. This led to a reduction in USD supply in Vietnam and increased pressure on exchange rates. The new tariff policies also influenced the Federal Reserve to maintain high interest rates, exacerbating the interest rate gap between the USD and VND.
3. **US Dollar Index (DXY) Movement**: Despite the DXY decreasing by more than 10% at times in the first half of 2025, the VND still depreciated. This divergence was partly due to Vietnam's specific economic conditions and policies.
4. **Gold Market and Inflation**: The VND's weakening against the USD was also a significant driver of gold price surges in Vietnam. As the VND lost value, gold became more expensive in local currency terms, adding to economic instability.
In response to these challenges, the SBV has taken several steps to manage the situation. The central bank has continuously adjusted its policy interest rate down since 2022 to reduce the lending interest rate and maintain it at a low level. The SBV also aims to maintain a low interest rate to ensure liquidity and stability for economic activities, creating an attractive lending environment.
The SBV has also been proactive in addressing the foreign currency needs of businesses and people, ensuring that these needs are fully met. The bank will continue to implement the Government's direction on maintaining a low interest rate in the long-term strategy.
Moreover, the SBV will consider credit growth expansion for qualified banks if inflation is controlled below 4.5% and commercial banks maintain good liquidity. The central bank will also regularly update market developments to propose appropriate solutions and manage exchange rates according to market supply and demand.
The trade policy of President Donald Trump's administration could significantly impact the USD/VNĐ exchange rate in the second half of 2025. The SBV will continue to closely monitor global and domestic economic developments to ensure a stable and conducive environment for economic growth.
Despite the challenges, the SBV remains committed to maintaining the stability of the VND and ensuring a healthy economy for Vietnam. The depreciation of the VND in the first half of 2025 was significant, but with the SBV's proactive measures, there is hope for a more stable second half of the year.
- The State Bank of Vietnam (SBV) has been adjusting its policy interest rate down since 2022 to support economic growth and maintain liquidity, making the lending environment more attractive.
- The decrease in the US Dollar (USD) Index (DXY) by more than 10% in the first half of 2025 did not prevent the Vietnamese Dong (VND) from depreciating, which is partly attributed to Vietnam's specific economic conditions and policies.
- The SBV is addressing the foreign currency needs of businesses and people to ensure they are fully met, following the long-term Government direction of maintaining a low interest rate.
- In response to challenges, the SBV will consider expanding credit growth for qualified banks in cases of controlled inflation below 4.5% and good commercial bank liquidity.
- The SBV will continue to regularly update market developments and propose appropriate solutions to manage exchange rates according to market supply and demand.
- The trade policy of the Trump administration could significantly impact the USD/VND exchange rate in the second half of 2025, and the SBV will closely monitor both global and domestic economic developments to maintain a stable environment for economic growth.
