Vietnam central bank blows whistle on rising interest rate race

Vietnam’s central bank has moved to rein in a renewed surge in deposit rates, issuing an urgent directive to stabilize borrowing costs as liquidity pressures build in the banking system.

March 2026 saw one of the sharpest increases in deposit rates in the past two years. Rates for retail deposits at several joint-stock commercial banks climbed above 8% per year, with some lenders like Cake, Vikki and GPBank offering as much as 9-9.2% for longer tenors or large deposits.

The increases were not limited to smaller and mid-sized banks. State-owned lenders, which typically maintain lower rates, also raised 12-month deposit rates to around 5.3-5.5%.

The move reflects growing liquidity pressures as credit growth accelerates while idle household funds shift to alternative assets like gold. Banks have been forced to raise deposit rates to retain customers, effectively triggering a new rate competition across the system.

At the same time, the State Bank of Vietnam (SBV) has shifted its monetary operations. After a prolonged period of net liquidity withdrawal to stabilize the exchange rate, the central bank injected more than VND33 trillion ($1.25 billion) into the system in the final week of March.

Through open market operations (OMO), the SBV conducted large-scale lending transactions totaling nearly VND200 trillion ($7.59 billion) at interest rates of around 4.5% per year, aiming to support bank liquidity amid heightened volatility in interbank rates.

Interbank rates at one point surged to as high as 12% per year for some short-term tenors - an unusually high level that signaled localized liquidity strains, prompting the central bank to act swiftly to cool the market and prevent spillover into deposit and lending rates.

Externally, monetary policy by the Federal Reserve remains a key variable. Contrary to earlier expectations of rate cuts, recent signals suggest U.S. inflation remains persistent, while rising energy prices driven by geopolitical tensions add further pressure.

The Fed has indicated it may keep interest rates higher for longer, and has not ruled out further hikes if necessary. This puts pressure on the VND/USD exchange rate, requiring Vietnam to maintain a sufficient interest rate differential to support capital flows and foreign exchange stability.

In this context, the SBV faces a narrowing policy space as it seeks to balance growth support with inflation control and exchange rate stability.

Policy signal to stabilize rates

Against this backdrop, the SBV’s directive to stabilize interest rates is more than an administrative order — it is a clear policy signal.

Under Dispatch No. 2342/NHNN-CSTT, the central bank has instructed credit institutions to strictly comply with interest rate regulations, strengthen internal oversight, and ensure transparency in both deposit and lending rates. It also emphasized balancing funding sources and uses to maintain liquidity without disrupting the market.

More importantly, the directive underscores the need to channel credit into production, business activities and priority sectors, rather than fueling a race in deposit rates.

Rising deposit rates typically feed through to higher lending costs, increasing financing burdens for businesses and potentially undermining economic recovery and growth in 2026.

The impact is expected to be more pronounced among highly leveraged sectors such as real estate, construction, materials and infrastructure, as well as manufacturers reliant on short-term working capital. Higher funding costs could compress profit margins and intensify refinancing pressures, particularly for firms in expansion phases.

In capital markets, elevated interest rates may push up corporate bond yields and divert funds away from equities as investors shift toward safer bank deposits, posing an additional challenge to earnings growth among listed companies.

Some analysts say Vietnam’s banking system is currently in a “fragile balance”: liquidity is not overly tight but no longer abundant, while interest rates need to remain low to support growth but face pressure from exchange rates and global conditions.

In this environment, the SBV’s role is critical. The latest intervention is not intended to suppress the market, but to ensure it operates within controlled limits and to prevent broader systemic risks.

For commercial banks, the challenge goes beyond competing for deposits to optimizing funding structures, improving capital efficiency and controlling costs - key factors to maintaining stability while supporting economic growth.

More broadly, the situation represents a test of monetary policy management amid a complex mix of domestic and global variables, where proactive, flexible but disciplined policymaking will be decisive.