Vietnam’s Economic Landscape in 2025: Inflation Challenges and Monetary Policy
By Dinh Vu, Thai Ha
Mon, September 15, 2025 | 10:15 am GMT+7
The Federal Reserve’s recent interest rate cuts in 2025, particularly the September reduction, provide a vital “policy space” for the State Bank of Vietnam (SBV). This flexibility allows the SBV to maintain lower interest rates aimed at supporting economic growth while managing exchange rate concerns.
Inflation Threats and Economic Growth
During a government meeting on September 6, SBV Deputy Governor Doan Thai Son raised alarms about core inflation consistently being above the 3% mark. This threshold poses significant risks in monetary policy management, prompting the need for proactive measures. According to him, delaying action once inflation surpasses this threshold could incur substantial costs and disrupt the economy.
Vietnam is currently wrestling with a “double war” against inflation pressures stemming from both internal and external factors. Internal pressures include increased aggregate demand, credit expansions, and adjustments in public service prices. On the flip side, external pressures come from global oil prices, USD/VND exchange rate fluctuations, and broader international market dynamics.
The Vietnamese government has set an ambitious GDP growth target of 8.3-8.5% for 2025. To achieve this, all resources must be mobilized to stimulate production, investment, and consumption. Public investment capital disbursement is being prioritized, while lending rates are experiencing slight reductions to support businesses.
Credit Dynamics
By the end of August, credit across the Vietnamese economy had surged by over 11% compared to the end of 2024, marking the highest increase observed in several years. If the current trend continues, we could see aggregate demand outstrip supply, leading to demand-pull inflation.
Dr. Nguyen Duc Do, deputy director at the Institute of Economics and Finance, notes that such rapid increases in aggregate demand are typical in times of strong recovery. However, he cautions that if credit growth isn’t controlled, the intimidation of inflation from demand-side pressures will intensify, particularly as public service prices are adjusted.
External Influences on Inflation
Inflationary pressures are not merely a domestic concern; they are also driven by input costs. Vietnam’s reliance on imported raw materials and fuels means that fluctuations in global oil prices directly affect domestic gasoline prices, subsequently increasing transportation and production expenses.
Recent adjustments in public service pricing further complicate the inflation landscape. For instance, electricity prices rose by 1.01% in August, while localities increased tuition fees and medical service costs according to established roadmaps. These “cost-push” factors are difficult to avoid and can ferment inflationary trends.
Additionally, depreciation of the VND against the USD exacerbates import costs, leading to “imported inflation.” Businesses are compelled to increase their selling prices to maintain profit margins, thereby elevating the overall price level.
The Role of Exchange Rate Management
Assoc. Prof. Dr. Pham The Anh, chief economist of VESS, underscores that managing the exchange rate will be central to inflation control in the upcoming months. A sharp depreciation of the VND could intensify imported inflation, given Vietnam’s heavy reliance on external inputs.
In light of these challenges, the SBV faces a classic dilemma. Maintaining low interest rates to foster growth risks overheating credit and demand, pushing inflation beyond target levels. Conversely, raising interest rates to tame inflation and stabilize the exchange rate could stunt economic recovery, impacting employment and business operations.
Currently, the SBV keeps its refinancing and discount rates at 4.5% and 3% per year, respectively, with commercial banks also slightly lowering lending rates. However, there is limited potential for further easing if inflation trends persist.
The Impact of U.S. Monetary Policy
A favorable external factor is the U.S. monetary policy. With the Federal Reserve cutting interest rates three times in 2024 and expected to continue doing so in 2025, this weakens the USD and alleviates some pressure on the VND.
Senior banking expert Nguyen Tri Hieu posits that this development provides the SBV with a valuable opportunity to sustain low interest rates while minimizing concerns about exchange rates.
Economic Forecasts
In a recent macroeconomic report, Vietcombank Securities (VCBS) projects that average inflation in Vietnam for 2025 will fluctuate between 3.7% and 4.1%. During this year, the Vietnamese dong might experience a depreciation of approximately 5%.
Furthermore, VCBS anticipates the foreign exchange market will become more favorable by year-end, as the Fed lowers rates and trade tensions diminish. Though deposit interest rates are expected to remain low, a slight uptick at some banks may occur, while lending rates are projected to stay low to support businesses.
Advisory for Businesses
Given the prevailing conditions, businesses are advised to hedge against exchange rate risks through forward contracts and foreign currency swaps. Diversifying raw material supply sources and managing operational costs will also be crucial strategies for navigating these economic shifts.
The SBV has set the daily reference exchange rate at 25,216 VND/USD as of September 15, remaining steady from the previous Friday. With a trading band of +/- 5%, the ceiling rate for commercial banks is 26,477 VND/USD, while the floor rate is 23,955 VND/USD.
At 11 a.m. on Monday, the buying rate at Vietcombank was 26,196 VND/USD, and the selling rate was 26,476 VND/USD, unchanged from last Friday. At Vietinbank, the figures were 26,197 and 26,476 VND/USD, respectively. For VPBank, the respective rates were 26,216 and 26,476 VND/USD, showing minor adjustments compared to the previous week.
With these dynamics at play, understanding economic indicators and strategic financial planning remains vital for businesses and policymakers alike in Vietnam.