Vietnam Prepares for Financial Challenges with Minimal Fiscal Flexibility

Vietnam's economy is showing signs of a subtle shift in its monetary policy, as accelerating credit growth and year-end pressures could trigger a mild upward shift in deposit rates. This potential adjustment comes as the State Bank of Vietnam (SBV) faces a delicate balance between maintaining accommodative measures and ensuring exchange rate stability.

The trend of inflation, which has stabilized in recent months, may limit the scope for further monetary easing. Inflation has remained below 4% on-year for 11 consecutive months through June, and British lender Standard Chartered's economists have revised down their 2025 inflation forecast for Vietnam to 3.5%.

Public investment disbursement by the end of July had reached almost 44% of the full-year target, indicating a steady pace of economic growth. Amid the country's push to maintain 8% growth, the central bank is compelled to keep interest rates low, while the banking sector rolls out a massive credit package to spur short- and medium-term growth.

The credit-to-deposit balance across the commercial banking system is forecast to improve slightly in August, and the average lending rate across the Vietnamese banking system has fallen to 6.53% per annum. However, cumulative capital mobilization growth still lags credit growth by an estimated 2.5 to 3 percentage points.

To attract deposit inflows amid persistently low deposit interest rates, banks are flexibly implementing policies or applying tiered interest rate structures. The 12-month deposit rate in August increased to 5.07%, and the average six-month deposit rate increased to 4.48%.

If exchange rate pressure continues to intensify, the SBV may reconsider further interest rate cuts to avoid destabilizing the exchange rate. The USD has appreciated by 2.9% against the VND since the end of 2024, and the VND-USD interest rate differential widened in early August.

State-owned commercial banks have largely maintained their deposit rates, while other commercial banks have recorded slight increases. Approximately VND180 trillion ($6.92 billion) is expected to mature on the open market in August.

The SBV is expected to continue deploying open market operations and coordinating with the State Treasury deposit channel to secure system liquidity. As of early August, specific bank interest rates can vary by country and product; for precise current highest interest rates, please check the latest financial reports or central bank announcements.

In conclusion, Vietnam's monetary policy is showing signs of a subtle shift as the central bank navigates economic growth, inflation pressures, and exchange rate stability. The SBV will continue to monitor these factors closely and adjust its policies as necessary to maintain a balanced and sustainable economic environment.