The US Federal Reserve opted to maintain its key interest rate but suggested that reductions might be introduced later this year.
| The SBV has increased both the daily fix and the higher foreign exchange cap, image by Le Toan |
The Deputy Governor of the State Bank of Vietnam, Dao Minh Tu, has expressed his confidence in keeping exchange rates stable, citing strong foreign exchange reserves, an optimistic forecast for exports, incoming foreign investments, and remittance flows as key factors.
“There isn’t a necessity for people to keep foreign currency at their homes or in bank accounts. You can confidently sell it to the banks,” stated Tu.
Adopting a more prudent position, UOB Singapore observed that the Vietnamese Dong reached an all-time low of approximately 25,600 VND/USD in early March following the State Bank of Vietnam’s increase in the USD selling rate for banks—a move that marked their first change since October of the previous year.
“The tendency remains toward further devaluation of the Vietnamese Dong because of uncertainties surrounding China’s economic performance and tariff regulations. There is a possibility that the United States might introduce tariffs on products from Vietnam since our trade imbalance with the U.S. keeps increasing substantially. Nonetheless, robust expectations for internal growth along with the State Bank of Vietnam’s dedication to maintaining currency stability may assist in alleviating pressures leading to devaluation,” explained the UOB research team.
In their recently published Foreign Exchange Outlook report, MUFG Bank has increased its Q4 USD/VND forecast to 25,900 from 25,700. This adjustment mirrors the government’s emphasis on fostering economic expansion along with a broader acceptance of inflation reaching up to 5% in 2025.
The SBV has increased both the daily fixing and the upper limit for the foreign exchange rate, leading to higher currency fluctuation. This aligns with significant shifts in Vietnamese governmental policies aimed at reducing the workforce in the public sector by 4-20 percent through cuts and restructuring efforts. Additionally, officials intend to allocate approximately 1.5 percent of GDP towards social assistance programs to facilitate this shift.
Concerning the full-year exchange rate forecast, MUFG Bank predicts that USD/VND will reach around 26,000 by 2025, indicating a gradual trend despite recognizing various counterbalancing structural elements.
“Although we anticipate that Vietnam will remain a focus for the new US administration because of its significant and expanding trade surplus with the United States, our report points out multiple positive factors,” it said.
Primarily, Vietnam has broadened its presence in the international export market, extending beyond just the U.S. to globally, following the onset of the trade conflict. Additionally, the nation is advancing within the value hierarchy, boosting domestically added value and the intricacy of exports. Finally, we expect that under current governance, tariffs imposed by the U.S. on China will stay elevated and escalate more rapidly compared to those levied on Vietnam.
The National Statistical Agency reported that Vietnam experienced its first trade gap since May 2024 in February, seeing imports jump by 40% compared to the previous year. Additionally, the government’s financial department carried out three separate transactions purchasing $500 million worth of US dollars from local banks, which intensified constraints on foreign currency availability and put more strain on the value of their national currency relative to others.
In this scenario, SBV has taken action by consistently increasing the central exchange rate and expanding the range within which foreign currency can be traded,” explained Tran Thi Khanh Hien, who leads research efforts at MB Securities. “Starting from early this month, the central rate has risen by more than VND400, representing an adjustment of about 1.6%, which is significant when compared to the total increase of VND487 throughout all of last year. Moreover, the SBV has removed its former strict limit of 25,450 VND/USD in the interbank market transactions. This shift indicates that the SBV is now prepared to accept higher fluctuations in exchange rates as part of their strategy to alleviate strain on their foreign exchange reserves.
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