Calls for an interest-rate hike in Vietnam are gaining traction, with Malayan Banking Bhd. (Maybank) forecasting an increase as early as this month. This comes in response to the Vietnamese dong weakening to a record low.
“We anticipate the State Bank of Vietnam (SBV) will hike policy rates by 50 basis points to stabilize the declining dong,” wrote Maybank analysts Brian Lee and Chua Hak Bin in a recent note. “This hike could occur in the coming weeks, either in May or June.”
Current Economic Context
The SBV raised the reverse repurchase rate to 4.5% on Wednesday, marking its second quarter-point hike in the past month. These moves are part of broader efforts to stabilize the dong, which has depreciated over 4% this year, reaching an all-time low of 25,470 per dollar on Thursday. Emerging markets have faced pressure from a strengthening dollar this year, prompting countries like Indonesia to deliver surprise rate hikes, as seen in April to support the rupiah.
While the SBV has adjusted the reverse repurchase rate, it has refrained from altering the refinancing rate, which remains at 4.5%. This decision highlights the delicate balancing act faced by authorities: while a rate hike could stabilize the currency, it might also strain the economy, exacerbating issues related to declining exports and restricted bank lending.
Policy Options and Strategic Moves
MUFG Bank suggests that the SBV might explore several measures before resorting to a rate hike. “The SBV may withdraw liquidity and raise interbank rates, alongside selling foreign exchange reserves to curb further weakening of the dong,” said Michael Wan, senior currency analyst at MUFG in Singapore. “The SBV is navigating a very tightrope given global factors such as high U.S. rates and a stronger dollar.”
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