Many uncertainties over exchange rates: Vietnam's central bank

There are many "unknowns" with monetary policy and exchange rates in the coming time, said Pham Chi Quang, director of the State Bank of Vietnam's (SBV) monetary policy department.

"This is due to pressure from the low VND interest rate policy, the Fed's "hesitation", and the U.S. administration's tax policy," Quang told a press meeting hosted by the SBV, the country's central bank, on Tuesday.

VND depreciates despite global USD decline

Since the beginning of 2025, the DXY index, which represents the strength of the USD against a basket of major currencies, has decreased by about 10%. However, on the contrary, the VND still depreciated by about 2.7-2.8% in the first half of the year.

Explaining this difference, Quang said that the cause comes from a series of factors, notably the requirement to maintain a low VND interest rate to support GDP growth, causing the VND-USD interest rate gap to be negative.

"This is a policy directed by the Government to support economic growth and stimulate credit. Of course, there must be trade-offs, including exchange rates," he noted.

Regarding why the trade balance is in surplus but the exchange rate is still falling, Quang said that the most important issue is still the cash flow. Foreign investors are net buyers on the stock markets in other countries in the region, while in Vietnam, they are net sellers, putting pressure on the exchange rate.

"Although the balance of payments is still positive, foreign capital has been withdrawn very quickly, especially in the stock market since 2024," Quang said.

Fuel for exchange rate instability

On the same morning, the U.S. announced a reciprocal tariff schedule applicable to 14 countries, including major trading partners in Asia.

Although the details of each tariff line have not been widely announced, according to Quang, this will seriously affect global FDI flows and create a chain effect on 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.

As capital flows may leave taxed countries to seek safer “havens”, the USD is likely to continue appreciating, leading to increased exchange rate pressure on Vietnam, which is keeping interest rates low to support recovery.

A "mysterious" factor that makes the exchange rate market unpredictable is the Fed's move to delay interest rate cuts. Quang noted that, although inflation in Europe and Japan tends to decrease, inflation in the U.S. is still unstable.

"The Fed - with its data-based management policy, especially the labor market - has postponed interest rate cuts twice, delaying expectations of global monetary easing. This makes the USD maintain its strength, continuing to attract capital flows from emerging markets," Quang added.