2025 a year of monetary policy challenge for Vietnam: experts

By Thai Ha, Thanh Thanh
Tue, January 7, 2025 | 8:14 pm GMT+7

The State Bank of Vietnam is expected to confront difficulties in monetary policy management in 2025 as VND devaluation pressure will be strong, say experts.

The State Bank of Vietnam’s head office in Hanoi. Photo courtesy of Sai Gon Giai Phong (Saigon Liberation) newspaper.

The State Bank of Vietnam’s head office in Hanoi. Photo courtesy of Sai Gon Giai Phong (Saigon Liberation) newspaper.

VND/USD exchange rate fluctuations are a major "variable" for the Vietnamese economy in 2025, according to Nguyen Tri Hieu, director of the Institute for Research and Development of Global Financial and Real Estate Markets.

Hieu noted experts believe that Trump's tax reduction policy for the rich will increase the U.S. budget deficit and potentially force the U.S. adminstration to issue bonds with high interest rates.

A budget deficit could also force the Federal Reserve (Fed) to buy more U.S. government bonds, a move known as quantitative easing, swelling the U.S. central bank's total assets and injecting a large amount of money into the market.

"All of this is likely to increase inflation and force the Fed to reverse the current monetary policy from loosening back to tightening, pushing up the USD/VND exchange rate," he added.

Nguyen Tri Hieu, director of the Institute for Research and Development of Global Financial and Real Estate Markets. Photo courtesy of FBNV.

Nguyen Tri Hieu, director of the Institute for Research and Development of Global Financial and Real Estate Markets. Photo courtesy of FBNV.

RongViet Securities Company (VDSC) predicted that the State Bank of Vietnam's (SBV) exchange rate management in 2025 will confront difficulties.

The devaluation pressure on VND will remain and be possibly higher if the U.S. imposes tariffs on Vietnamese exports, although the probability of this happening is low, it wrote in a report.

“Exchange rate pressure will still be a burden for the SBV in 2025. The prospect of a stronger USD on anticipation of the Trump 2.0 administration's policy will exert pressure on efforts to stabilize exchange rates in emerging markets," it noted.

According to VDSC, in 2025, with the foreign exchange reserve buffer continuing to be eroded and the unsustainable ability to attract/retain foreign currency flows, the USD/VND exchange rate will fluctuate strongly within the range of +/ -5%, ending the year at VND26,200 per USD.

In addition, the risk of tariffs from the Trump administration could make the VND devaluation pressure stronger.

VDSC's report argued that due to the thin foreign exchange reserve buffer, Vietnam's exchange rate fluctuations in 2025 will depend on three factors: domestic foreign currency supply-demand, prospects of increases in the price of USD, and U.S. tariff policy towards Vietnam.

This is not a difficulty specific to any country. The DXY index is forecast to increase by 5-10% in 2025. Although the trend of cutting interest rates by central banks creates certain advantages for exchange rate management, the pressure from the USD appreciation could overwhelm the positive effects from the interest rate cutting cycle of global central banks, the broker wrote.

"A review of the factors affecting the strength of the USD shows that the USD may continue to strengthen in 2025, especially when developments by the end of 2024 did not reflect the policy that Trump would implement in 2025."

VDSC believes that the VND is likely to depreciate by 5%, and this will affect import costs and investor confidence.

“The SBV will face more difficulties than preferences in controlling exchange rates in 2025. The biggest difficulty is that FDI capital flows would be disbursed just enough to offset profits transferred back home, thus pressure on USD demand is still high as the U.S. interest rates remain high while foreign exchange reserves have decreased sharply," VDSC commented.

Michael Kokalari, chief economist at Vietnam's leading fund manager VinaCapital, in a report released on December 20 forecast that the Vietnamese dong is likely to depreciate 3% in 2025 on anticipation that the US Dollar/DXY Index will finish 2025 nearly unchanged.

Standard Chartered in a report issued on December 12 predicted that Fed rate cuts, which should lead to a softer-USD bias over the next few quarters, will result in the exchange rate of 25,450 by Q2/2025.

On Tuesday, the SBV set the daily reference exchange rate for the US dollar at VND24,332, down from the 24,337 announced on Monday. With a ±5 trading band, commercial banks can quote the greenback at VND23,115-25,549 a dollar.

Vietcombank on Tuesday offered the USD at VND25,208-25,548 for bids and asks, down VND45 and VND5 from Monday.

The figures for BIDV, another Big 4 bank, are VND25,208 and VND25,548, also down VND45 and VND5 from the previous day.

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