Vietnam gains opportunity to steady currency and economy following Fed's interest rate reduction
The Federal Reserve's decision to lower its benchmark interest rate by 25 basis points to 4.00-4.25% on September 17 has stirred optimism in Vietnam's economic outlook. According to Nguyen Quang Huy, CEO of the Finance and Banking Faculty at Nguyen Trai University, this move could initiate a broader global monetary easing cycle.
The Fed's rate cut is expected to stimulate domestic consumption and investment in Vietnam. Lower US interest rates could allow commercial banks in Vietnam to reduce borrowing costs, making it more affordable for businesses and the government to invest in foreign currency. Borrowing and investment costs for Vietnamese firms and the government are anticipated to fall significantly as a result.
Greater liquidity, resulting from the Fed's decision, would strengthen the banking system and encourage credit expansion in Vietnam. However, Huy warns that the benefits of cheaper capital would only be sustainable if tied to macroeconomic stability. The balance between VND mobilisation and credit in the banking system has tightened, raising concerns over macroeconomic stability in the months ahead.
Vietnam faces a critical test in balancing growth-supportive policies with currency stability in the last six months amid tightening external conditions. Associate Professor, Dr Tran Hoang Ngan described the Fed's decision as a positive signal for Vietnam's economy.
The National Bank of Vietnam is stepping up liquidity management and signalling readiness for stronger interventions to ease exchange rate volatility. The VND has strengthened for ten consecutive sessions without an uptick since September 4. The Fed's rate cut is expected to ease pressure on the exchange rate until the end of the year.
However, UOB expects the VND to lag regional currencies despite renewed USD softness, projecting USD/VND at 26,300 in Q4 2025, easing to 26,200 in Q1 2026, 26,100 in Q2, and 26,000 in Q3.
The stock market and foreign portfolio inflows are expected to gain momentum as cheaper global capital flows into emerging markets such as Vietnam. Huy suggests that capital in Vietnam should be directed towards production, technological innovation, and long-term growth sectors.
The average 12-month deposit rate among private joint-stock commercial banks could ease slightly by 0.02 percentage points to 4.7 per cent by end-2025, according to MBS Research. MBS Research's money report predicts that deposit rates could come under pressure from rising credit growth towards the year-end.
Despite these challenges, the lower Fed rates have boosted confidence in Vietnam's economy. The Fed's decision is a positive signal for Vietnam's economy, and Huy emphasises that the benefits of cheaper capital would only be sustainable if tied to macroeconomic stability. The National Bank of Vietnam aims to strengthen its liquidity management and capacity for stronger interventions to control exchange rate volatility and ensure macroeconomic stability in the period from September 4 to the end of Q3 2025.
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