Interest rate hike pressure in 2025

Given the aforementioned circumstances, HSC projected that by the end of 2025 and 2026, the State Bank of Vietnam will increase the policy rate to 4.75% and 5%, respectively.

The USD may strengthen

The USD is continuing to rise sharply on the international market, despite the Federal Reserve's intention to continue reducing interest rates by an additional 25 basis points by the end of 2024.

The foreign exchange market is worried that President-elect Donald Trump's tariff pledges, if they are carried out, would raise inflation once again, impeding the Federal Reserve's ability to lower interest rates. If U.S. inflation spikes significantly, the Fed may even be forced to raise rates once more. According to Michael Metcalfe, chief economist at State Street Global Markets, there is a greater risk that Donald Trump's policies could cause stronger inflation in his second term compared to his first term.

In reality, on November 22, 2024, Donald Trump's victory caused the USD index to reach 107.5 points, its highest level in more than two years. The USD index is currently up 4.25% from the start of this year, trading at about 106.5 points.

Strong momentum for a USD appreciation in 2025 and the years that follow will be created by plans for fiscal easing, large tariff increases on China and America's trading partners, stricter immigration policies under Donald Trump, high interest rates in the U.S. and other economies, and relatively high American protectionism.

"The tariffs on imports and Donald Trump's fiscal support policy in his second term will bring back inflation risks, and the FED may be more cautious with the interest rate cut path," said KBSV.

Pressure on interest rates and exchange rates

A stronger USD will raise the short-term danger of the VND depreciating. Furthermore, Vietnam has very little foreign exchange reserves—roughly 87 billion USD, or about three months' worth of imports. The State Bank of Vietnam will face major difficulties in controlling the exchange rate in 2025 as a result of these issues.

According to new research from UOB, even with a strong base, the VND is nevertheless "squeezed" by outside forces like the USD rising as the foreign exchange market reassesses the possibility that the FED may lower interest rates during Donald Trump's second term. Additionally, this bank predicts that in Q3 2025, the USD/VND exchange rate may hit a record high of 26,200 VND/USD.

The State Bank of Vietnam's objective of reducing interest rates to boost its economy will undoubtedly face numerous challenges due to the pressure on the exchange rate to rise. Furthermore, a lot of analysts worry that interest rates may rise in order to "save" the currency rate at specific points in time.

In addition to the exchange rate, there is pressure on interest rates to increase. Financial analyst Dr. Nguyen Tri Hieu claims that banks have been compelled to increase deposit interest rates in order to draw deposits due to the significant growth in loan demand.

Because a low-interest-rate environment is maintained, the interest rate trend will be steady in the first half of 2025. However, if inflationary pressures increase or credit expansion picks up speed, there's a chance of a modest rate increase in the second half of 2025," VPS stated.

Nguyen Thi Hong, governor of the State Bank of Vietnam, added that pressures from the domestic environment and the global market are causing policy rates to confront major challenges at the moment. "If lending rates decrease significantly, there is a risk of exchange rates rising, causing macroeconomic instability and concern among foreign investors," the governor of the SBV said.

Experts predict that the State Bank of Vietnam will likely keep steady policy rates in early 2025 due to the government's rate-cutting program, but by the end of 2025, it may need to make adjustments and raise policy rates.