Rising inflation pressure poses challenge for Vietnam’s monetary policy

Vietnam’s central bank is facing mounting pressure to balance economic growth and inflation control as rising global prices, exchange rate risks and the prospect of a return to trade deficits complicate monetary policy management.

Speaking at a recent seminar, Pham Thanh Ha, Deputy Governor of the State Bank of Vietnam (SBV), said 2026 would be a crucial year as Vietnam begins implementing its 2026-2030 socio-economic development plan.

The National Assembly, the country's legislature, has set a GDP growth target of at least 10% for 2026 while aiming to keep average consumer price index (CPI) increase at around 4.5%, creating significant pressure on macroeconomic management including monetary policy.

“The banking sector is responsible for mobilizing and allocating financial resources efficiently to meet funding demand for production, business, investment and consumption, while channeling capital into priority sectors and growth drivers,” Ha said.

“At the same time, it must help maintain macroeconomic stability, control inflation and ensure the safety of the banking system,” he added.

According to the central bank, the challenge is no longer simply about expanding credit to support the economy, but also ensuring credit quality, controlling risks and maintaining financial system stability amid persistent global uncertainty.

Pham Chi Quang, head of the SBV's monetary policy department, said monetary policy was currently under significant pressure from global economic and financial volatility. "Geopolitical tensions, persistent inflation and shifts in policy among major central banks are creating substantial challenges for highly open economies such as Vietnam."

According to the International Monetary Fund, global inflation could rise to around 4.4% in 2026, above the actual level recorded in 2025, reinforcing inflation control as a top priority for central banks worldwide.

Domestically, Vietnam’s ambition to sustain high economic growth throughout the 2026-2030 period is making policy management more difficult.

“This is a multi-objective challenge that requires policymakers to simultaneously control inflation, maintain macroeconomic stability and support economic growth,” Quang said.

Economists at the seminar noted that monetary policy space is becoming increasingly limited. With inflationary pressure building, exchange rate risks persisting and banking system liquidity under strain, further interest rate cuts to support businesses must be approached more cautiously.

They warned that overly aggressive monetary easing amid rising inflation risks could place additional pressure on the Vietnamese dong, inflation and financial system stability.

Nguyen Phi Lan, head of the SBV's forecasting, statistics and monetary-financial stability department, said that inflation pressure had become increasingly evident in 2026, particularly as conflict in the Middle East pushed up global oil and fuel prices.

According to Lan, Vietnam’s CPI in April rose more than 5% from a year earlier, while the IMF forecasts the country’s inflation rate could reach 4.9% this year, exceeding the National Assembly’s 4.5% target.

Beyond inflation, Vietnam also faces the risk of returning to a trade deficit after years of trade surpluses. During the first four months of 2026, signs of a widening trade imbalance had already begun to emerge, adding pressure to exchange rates and the foreign exchange market, Lan said.

“This is a major challenge not only for monetary policy management in 2026 but also throughout the 2026-2030 period,” he said.

“In the current context, the banking sector’s most important role is to maintain macroeconomic stability and control inflation in order to create a foundation for sustainable growth. Without effective inflation control, even high growth would struggle to generate real value,” Lan added.

Credit growth not equal to quality growth

Although total outstanding loans in Vietnam’s economy reached more than VND19,400 trillion ($736.79 billion) as of April 28, 2026, up 18.26% from a year earlier, experts at the seminar said the key issue was not only the scale of credit growth but also the quality of capital allocation.

Pham Thi Thanh Tung, deputy director of the SBV's department of credit for economic sectors, said the central bank continued to direct lending toward production, business activities, priority sectors and new economic growth drivers.

Outstanding loans for agriculture and rural development reached around VND4,300 trillion ($163.31 billion), while loans to small and medium-sized enterprises totaled nearly VND3,800 trillion. Lending to exporters and high-tech enterprises also posted strong growth in the first quarter.

However, economists cautioned that rapid credit expansion does not necessarily translate into sustainable economic growth if capital is not allocated effectively.

Associate Professor Pham Thi Hoang Anh, acting deputy director of the Banking Academy of Vietnam, said that in a credit-dependent economy like Vietnam, the relationship between banks and businesses should be viewed as a symbiotic mechanism rather than simply a lender-borrower relationship.

“The key issue is not only expanding credit, but ensuring that capital flows into sectors that generate productivity, added value and genuine economic growth,” she said.

“Bank lending should focus on sectors with high added value, strong spillover effects and long-term growth potential instead of flowing into riskier areas,” Anh added.

Several experts also stressed that Vietnam cannot continue relying excessively on bank credit to achieve high growth targets.

Nguyen Xuan Hai, acting editor-in-chief of Banking Times, said lower interest rates or expanded credit would have limited impact without stronger coordination between macroeconomic policies, especially fiscal policy.

“One hand alone cannot make a sound,” Hai said, quoting experts at the seminar to emphasize that efforts by the banking sector alone would not be sufficient to drive economic growth.

Lan, head of the SBV's forecasting, statistics and monetary-financial stability department, shared the same view, saying that as monetary policy space narrows, fiscal policy should play a larger role through accelerated public investment disbursement, stronger business support measures and efforts to stimulate domestic demand.

Experts also called for further legal reforms to support businesses, development of capital markets and improvements in the business environment to strengthen the economy’s capacity to absorb capital.

In the longer term, Vietnam’s growth model will need to rely more heavily on innovation, technology, digital transformation and productivity gains rather than excessive credit expansion.

Against the current backdrop, maintaining macroeconomic stability remains a prerequisite for sustaining market confidence and supporting long-term economic growth, they said.