Controlling and curbing interest rates to more manageable levels represent the most effective remedy for the current economic landscape. The timing of this intervention is particularly strategic, following a series of fiscal measures previously implemented by the Government to serve as a buffer against energy price volatility and to restore market stability.

Right diagnosis On Thursday, April 9, the newly appointed governor of the State Bank of Vietnam (SBV), Pham Duc An, convened a meeting with 46 commercial banks to implement monetary policy measures. As a result, all participating institutions pledged to lower both deposit and lending rates to support economic activity. Between Friday and Monday, many banks reduced interest rates by 0.5 to one percentage point, depending on tenor. This marks the governor’s first initiative—not merely to halt rising rates, but to actively cut them—despite the prevailing trend of interest rate hikes. Some observers have expressed concern that Vietnam’s move runs counter to the global trend, where many central banks are expected to tighten monetary policy in the coming months. In mid-March, the Reserve Bank of Australia (RBA) raised its policy rate by 0.25 percentage point to 4.1%. Meanwhile, forecasts for the U.S. Federal Reserve (Fed) have shifted: instead of three expected rate cuts this year, markets now anticipate only one, with the possibility of further hikes not ruled out. Similarly, the European Central Bank (ECB), the Bank of England (BOE), and the Bank of Japan (BOJ) have all signaled that additional rate increases remain on the table. Notably, amid mounting pressures on the U.S. dollar–Vietnamese dong exchange rate and rising inflationary risks, some analysts argue that higher interest rates are inevitable to safeguard the domestic currency and contain inflation. By the end of March, the U.S. dollar price on the informal market at times exceeded VND28,000 per dollar, coinciding with the U.S. Dollar Index climbing above 100 points. Meanwhile, Vietnam’s consumer price index (CPI) in March rose 4.65% year-on-year, driven largely by a 12.85% surge in transport-related costs. In economic theory, inflation is generally classified into four key categories: (i) monetary inflation occurs when money supply expands excessively relative to the volume of goods produced, driving prices higher; (ii) demand-pull inflation arises when aggregate demand outpaces supply, often due to increased government spending or heightened consumer demand; (iii) cost-push inflation results from rising production costs, such as higher input material or fuel prices, which compel businesses to raise selling prices; (iv) imported inflation (exchange-rate inflation) emerges when the cost of imports rises, particularly in tandem with depreciation of the domestic currency, thereby increasing overall price levels. First, it should be emphasized that Vietnam is not currently facing inflation under categories (i) monetary inflation or (ii) demand-pull inflation. Data from the National Statistics Office show that as of March 24, 2026, the total means of payment had risen by just over 1% compared with the beginning of the year. Meanwhile, total retail sales and service revenue in the first quarter increased 10.9% year-on-year—an average pace relative to previous years. In essence, interest rates are typically raised to control inflation when an economy faces monetary inflation or demand-pull inflation. This approach withdraws money from circulation, curbing excessive supply and narrowing consumption demand. Vietnam’s current inflationary pressures, however, stem primarily from an energy shock, which has triggered import-driven inflation as the country relies heavily on petroleum imports. Added to this is the strain from exchange rate fluctuations. As fuel and transport costs continue to rise, cost-push inflation is expected to follow, as businesses pass higher input expenses onto consumers. Right cure, right time When the diagnosis is correct, it becomes clear that raising interest rates to curb inflation under current conditions may not be effective. As analysts worldwide have noted, monetary tightening cannot resolve supply-side shocks. For instance, higher interest rates will not reopen the Strait of Hormuz or boost oil production to offset supply losses caused by the conflict in Iran. If interest rates are raised excessively, borrowers will face heavier financial burdens and may be forced to increase the prices of goods and services to offset higher financing costs. Banks, in turn, could encounter rising risks of non-performing loans. At the same time, enterprises may hesitate to borrow for production expansion, opting instead to deposit funds in banks to benefit from elevated interest rates. Such dynamics would undermine investment and business activity, posing a threat to the country’s double-digit economic growth target. That said, interest rate containment and gradual reduction appear to be the appropriate prescription in the current context. The timing of this policy is also opportune, as it follows the Government’s deployment of a range of fiscal measures designed to buffer the energy shock and stabilize markets. Most notably, the Government has tapped the fuel price stabilization fund to rein in rising fuel costs. When the fund was nearly depleted by the end of March, authorities decided to advance VND8 trillion from the surplus central budget revenue in 2025 to replenish the fund, ensuring continued price support. By the end of March, the Government also moved to ease tax burdens on energy. The environmental tax, special consumption tax, and value-added tax on gasoline, oil, and jet fuel were reduced to zero as of April 15, 2026. On April 12, authorities extended the zero rate from April 16 through the end of June 2026. This policy reflects hopes that the United States and Iran could soon reach a peace agreement and reopen the Strait of Hormuz. However, if the conflict drags on, fiscal interventions to support energy prices may need to be extended further. Fiscal measures to stabilize energy prices, combined with monetary solutions to ease interest rates, represent the most appropriate remedy in the current situation. This coordinated approach underscores the regulator’s flexible management of macroeconomic stability while ensuring that the pursuit of the double‑digit growth target is not neglected. Vietnam is among the few countries to act early with targeted fiscal measures to contain energy prices. According to an OECD report released on April 13, 2026, by April 9, 2026, 26 member countries had adopted policies to support energy costs. Common approaches include fuel tax reductions, direct price subsidies, retail price controls, and income support. However, limited fiscal resources mean that such measures must be carefully directed. Policies should focus on priority groups—particularly the most vulnerable—rather than broad-based support that risks inefficient use of budget revenues.