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BANKING & FINANCE

Pressure mounts

The challenges linger in maintaining exchange rates and
addressing the interest rate gap between the VND and USD.

By HOANG LAN

he State Bank of Vietnam (SBV)’s an end and that central banks would soon with the central bank’s successive reduc-
efforts over the past few weeks to relax monetary policies. Such expectations, tions in policy interest rates. The signif-
T regulate liquidity through the bond however, failed to materialize, replaced by icant interest rate differential between
market have led to a sharp increase in unexpected shocks. the VND and global benchmark rates
interbank VND interest rates. While the In Vietnam, exchange rates became a resulted in estimated deficits in both
interest rate gap between the VND and focal point as early as March. Experts the capital and financial accounts in
USD has narrowed somewhat, the attribute this to the prolonged VND - 2023, reaching approximately 0.7 per
exchange rate continues to rise steadily. USD interest rate differential, which has cent of GDP.
Analysts suggest that given the substantial persisted for nearly nine months since In discussions with Vietnam Economic
global inflationary pressures, domestic mid-2023, when the SBV began reducing Times / VnEconomy, Mr. Nguyen Ba
exchange rates are unlikely to stabilize in interest rates to bolster economic growth. Hung, Chief Economist at the Asian
the near future. Comprehensive data on the balance Development Bank (ADB) in Vietnam,
of payments indicates that Vietnam con- said that given the current USD - VND
tinued to benefit from positive FDI dis- interest rate gap, the ongoing trend of
Exchange rates
A wave of optimism briefly swept bursements in 2023. However, there has withdrawing funds for markets with higher
through global financial markets at the been a notable increase in the outflow interest rates is expected to persist for a
beginning of 2024, fueled by investor beliefs of investment capital from Vietnam since few more months, adding to the strain
that the battle against inflation was nearing the second quarter of 2023, coinciding on the balance of payments.

36 Vietnam Economic Times May 1, 2024 en.vneconomy.vn