Vietnam interest rates likely to decline by year-end

Interest rates in Vietnam are expected to decrease in late 2023 as the U.S. dollar price would fall and Vietnam's monetary policy moves towards supporting growth, according to Bao Viet Securities JSC.

“Clearer signs will be seen from the second quarter when the U.S. Federal Reserve stops hiking its benchmark rates and Vietnam's inflation cools down”, the company said in its latest report.

According to the report, in January, the Vietnamese dong increased by 0.75% month-on-month against the USD. High interest rates and a cooling U.S. Dollar Index (DXY) were the factors supporting the Vietnamese dong's gaining.

Other currencies in emerging markets in Asia also shared the same price movement compared to the end of 2022. Among them, the Thai baht showed the highest appreciation at 4.76%.

In its first monetary policy meeting of 2023, the U.S. Fed continued to raise interest rates but at a slower pace, 0.25 percentage points, the lowest since March 2022.

The Fed is slowing rate hikes with a plan to stop raising interest rates in 2023 in the context of a less positive US economic outlook, which has caused the DXY to fall after reaching a 20-year peak in October 2022.

The broker (BVSC) said that the above developments will help reduce the devaluation pressure on the VND this year, making it more stable than in 2022.

The dong has appreciated following the State Bank of Vietnam's (SBV) move to buy the U.S. dollar, showing an easing of pressure on the exchange rate from the outside. Combined with efforts to bring the consumer price index in the coming months to below the target of 4.5%, this will be the basis for further lowering of interest rates and easing monetary policy to support Vietnam's economic growth.

Deposit interest rates were almost flat in January, and have shown signs of cooling since the end of the month. With the easing of exchange rate pressure, BVSC believes that the pressure on interest rate hikes would no longer linger in 2023.

The SBV has set a 2023 credit growth target of 14-15%. However, with high interest rates and the real estate sector facing difficulties with a less positive economic outlook, this growth might be just 13%, said BVSC.