Experts Say Vietnam’s Interest Rates Are Not Expected to Decrease Further

Interest rates in Vietnam have recently become a hot topic as analysts and economists assess the future of the financial landscape. According to Pham The Anh, the chief economist at the Vietnam Economic and Strategy Research Center (VESS), a decrease in interest rates is unlikely, with the possibility of a slight increase in the near future. This sentiment was shared during the “Steady Amidst Storms” seminar held in Hanoi, where Anh presented insights into the current economic environment.

Currently, interest rates in Vietnam hover around 6%, a notable dip from the pre-pandemic levels of 7-8%. This decrease is significant in the context of rampant global economic fluctuations, where interest rates are affected not just by local conditions but also by global financial trends.

Anh emphasized that domestic inflation rates play a vital role in shaping interest rates in Vietnam. He suggests that inflation is projected to remain in the 3-4% range. This poses a critical dilemma: with interest rates set at 6% and inflation at 4%, the potential for further cuts is minimal if the goal is to maintain positive real interest rates.

Wage pressures, increasing real estate prices, and the subsequent passing of these costs to consumer goods contribute to the complexity of Vietnam’s economic situation. “Inflation in Vietnam cannot be as low as in developed countries due to these pressing factors,” Anh remarked, underscoring the challenges ahead.

Moreover, the interplay between interest rates and exchange rates has become increasingly significant. Trade deficits and the disparity between Vietnam’s interest rates and those of global markets have led to notable fluctuations. While the country has made strides in reducing its trade deficit, last year’s interest rate gap caused volatility in the exchange rate and potential capital outflows.

Adding a global perspective, Anh addressed how U.S. economic policies, particularly those related to tariffs under Donald Trump’s administration, could impact Vietnam’s economy. The anticipated appreciation of the USD as tariffs were introduced highlighted the complexities of international trade dynamics. Although tariffs were claimed not to burden American consumers, Anh argued that manufacturers tend to pass on increased costs, prolonging inflation and potentially impacting interest rate policies in the U.S., which ultimately affects Vietnam.

Tran Hoang Son, the market strategy director at VPBank Securities, shared similar sentiments, expressing hope for stabilized interest rates by 2025. He acknowledged the State Bank of Vietnam’s efforts in managing interbank rates and absorbing excess liquidity to stabilize the exchange rate. However, he cautioned that unexpected fluctuations in exchange rates or inflation could lead to slight increases in interest rates.

The stock market also garners attention in the context of these discussions. Son noted that the VN-Index, which reflects the Ho Chi Minh Stock Exchange, has established a trading range between 1,200 and 1,300 points this year. He forecasted that unless there are significant improvements in external conditions such as exchange rates or reductions in foreign net selling pressures, the market is likely to remain within this range into the first quarter of 2025.

Vietnam’s status as an emerging market offers potential advantages; however, many factors contribute to capital inflow decisions. Anh stressed that while an upgrade in Vietnam’s stock market status could attract foreign capital, it is not the sole determinant. Stable economic growth and favorable U.S. interest rate policies are also vital elements in creating a welcoming investment climate.

As the discussion unfolds, economic forecasts remain ambitious. Vietnam’s economy is currently projected to grow between 6.8% and 7% this year, a promising outlook that exceeds the National Assembly’s targets. For 2025, a GDP growth target of 6.5% to 7% has been established, with aspirations aimed at reaching 7-7.5%. Prime Minister Pham Minh Chinh has underscored that macroeconomic stability will continue to be a critical focus, fostering a conducive environment for growth.

Nevertheless, Anh characterized the 8% GDP growth target for 2025 as overly optimistic, advising that a more realistic assessment would be around 6.5%. As Vietnam negotiates its path forward, it will undoubtedly face both opportunities and challenges influenced by both local and global economic forces.