Vietnam’s monetary policy has been going through a year full of challenges and difficulties, stemming from both international financial uncertainties and domestic factors. As the year enters its final months, the goal of high GDP growth places even greater pressure on the monetary regulator.

Interest rates under multiple pressures Credit growth of around 16% and interest rate cuts are the key objectives set by the Government and the State Bank of Vietnam (SBV) from the beginning of 2025. These are also important intermediate goals to achieve the ultimate target of 8% GDP growth, laying the groundwork for double-digit growth in the years ahead. However, these two goals are inherently contradictory, making it difficult to achieve both simultaneously. Specifically, reaching the high credit growth target inevitably puts significant pressure on interest rates, hindering efforts to lower them. This requires the SBV to be extremely flexible in coordinating monetary tools while also being decisive and firm in ensuring the entire banking system joins hands with the SBV in implementation. In the first half of 2025, credit grew 8.3% compared to the end of 2024, outpacing the 6.11% growth rate of capital mobilization during the same period. In the first seven months of 2025, credit had already risen 9.8% against the end of 2024, projected to be 1.3–1.5 times higher than the capital mobilization growth rate. The gap between credit growth and deposit growth has created pressure on deposit as well as lending rates. On the global financial market side, the U.S. Federal Reserve’s (Fed) repeated delays in cutting rates have created substantial pressure on the SBV’s efforts to lower or stabilize rates. Specifically, the Fed’s current target rate is in the range of 4.25–4.5%, about 0.25–0.5 percentage point higher than Vietnam’s open market operations rate (currently at 4%). The SBV has been striving to maintain interbank market rates around 4% to keep borrowing costs among credit institutions low, thereby stabilizing rates in the primary market (between credit institutions and businesses, households). However, the SBV’s policy rate being lower than the Fed’s target rate has led to several consequences. First, borrowing VND remain cheaper than borrowing in U.S. dollars (foreign loans), which has discouraged domestic firms from expanding foreign currency borrowing. As a result, foreign loans from international financial institutions have declined, limiting the inflow of foreign currency into Vietnam’s market, thus putting pressure on the exchange rate. A higher exchange rate per VND then feeds back into upward pressure on interest rates. With reduced foreign currency loans from abroad and rising domestic capital demand, alongside the high credit growth policy, the burden on VND credit supply has intensified. The fact that deposit growth lags behind credit growth has placed enormous pressure on VND interest rates. Second, lower VND rates than U.S. dollar rates have fueled greater demand for holding foreign currency among the public, with expectations of a rising exchange rate. Various profit-seeking strategies have emerged from dollar hoarding, such as using USD as collateral to borrow low-interest VND loans for short-term financial investments, while expecting the collateral (USD) to appreciate in the future. The increased demand for holding USD has been evident in the fact that the unofficial market’s buying price for USD often exceeded that at commercial banks. This rising demand has pressured the USD/VND exchange rate, indirectly pushing up interest rates, or VND depreciation. Third, the SBV’s policy rate being lower than the Fed’s rate indicates that the SBV has been attempting to maintain a lower rate target than the Fed’s. This has led to negative VND–USD interest differentials across many maturities. Consequently, demand for holding USD among financial institutions has increased, forcing the SBV to absorb VND at various times through bill issuance to push up interbank rates, rebalancing USD demand in the money market. However, this move has conflicted with the goal of maintaining low interest rate stability. It can be seen that VND interest rates on the interbank market have fluctuated relatively quickly, rising sharply and then falling steeply at times, though these swings have been short-lived. Over the past year, interbank dong rates have generally trended upward, pressured by the shortfall in deposit mobilization in the primary market, combined with the impact of U.S. monetary policy and the persistent rise in the USD/VND exchange rate. Overall, however, interbank dong interest rates have remained no higher than the open market rate (currently around 4% per year). This reflects the continuous efforts and policy measures of the SBV over the period. Efforts by SBV to stabilize interest rates As noted above, the challenges for the SBV are significant. Nevertheless, it can be said that the Government and SBV have remained steadfast and highly determined in pursuing the dual objective of stabilizing interest rates while also fostering credit growth of 16%. Interbank rates have risen, but not significantly above the policy rate. The SBV has continuously injected liquidity into the open market. Flexible measures, such as offering longer-term liquidity injections of up to three months to ease repayment schedules, or diversifying maturities for liquidity provision, have helped optimize credit institutions’ use of borrowed funds. Recently, the SBV also implemented foreign currency forward sales, with registered purchases from credit institutions totaling around US$1.5 billion, which helped reduce exchange rate pressures. With six-month maturities expiring after the Lunar New Year, together with the expected surge of remittances toward year-end, the measure supports foreign currency supply within the banking system. Looking ahead, a clearer roadmap from the Fed on rate cuts would also bolster expectations for a softer exchange rate in the final months of the year. This represents an effective foreign exchange intervention that the SBV has employed on multiple occasions. All these measures aim at the ultimate goal of stabilizing interest rates and securing high GDP growth this year. As for the primary market, following strong directives from the Government and the SBV, deposit rates at credit institutions have remained broadly stable, with a downward trend in long-term tenors, especially the 12-month term. The 12-month deposit rate is particularly crucial in the capital structure of credit institutions, given the typical mismatch in Vietnam where funds are mobilized short term (under one year) but lent out long term (over one year). Continuous reductions in 12-month deposit rates have significantly supported credit institutions in lowering lending rates across the economy. This reflects the SBV’s strong and resolute leadership in guiding and rallying the entire banking system to act in unison with the Government and SBV to reduce interest rates and achieve the 8% GDP growth target. Meanwhile, deposit rates for short tenors of 1–6 months have risen. This is partly due to pressures from credit growth and exchange rate movements. On the other hand, commercial banks have expanded short-term deposit mobilization at relatively low rates to reduce borrowing costs for clients. Deposits of less than six months, capped by a ceiling rate, are currently limited to 4.75% per year. Although rates for these short tenors have risen, they remain on average below the regulatory ceiling. Outlook for monetary policy success We are now nearly through the first three quarters of 2025, a period marked by considerable volatility in international financial markets. Over this time, the SBV can be seen as having been relatively successful in achieving its goal of reducing and stabilizing interest rates, despite ongoing concerns and challenges related to the exchange rate, credit growth, and inflation. In the remaining months of the year, several developments could provide favorable conditions for the SBV to maintain stable interest rates. Notably, markets are anticipating Fed rate cuts, and the upcoming remittance season is expected to inject a substantial amount of foreign currency into the market. A Fed rate cut could prove pivotal, creating more policy space for the SBV to continue pursuing — and ultimately succeed in — its interest rate objectives.