Pham Nhu Anh, CEO of Military Bank (MBBank), made the remarks at the MB Economic Insights 2025 forum held last Friday in Hanoi, which gathered top economists, policymakers, and more than 400 businesses engaged in import and export activities.

"In the short term, lending rates in Vietnam may edge up slightly but remain low by both historical and global standards. Even if rates rise by 0.5 to 1 percentage point, they are still cheap compared with previous years and with the rest of the world,” he said.

Anh noted that Vietnam has room for rate cuts in the long-term, though capital inflows may not reverse immediately.

“The Fed’s policy rate is still around 3.75-4% per year,” Anh said. “If an investor converts USD into VND, deposits it for a year at about 5%, and then converts it back to USD, the effective return after accounting for exchange rate changes is roughly 2%. Clearly, keeping money in the U.S. with a 4% return is better. It’s that simple.”

Therefore, Anh said, in the short term, capital is unlikely to flow back strongly into Vietnam, making it difficult for policymakers to both stabilize the exchange rate and cut rates simultaneously.

“Over the past two months, we’ve seen interest rates start to edge up as the dong has already weakened 3.5% by October - or about 6% compared to the period last year - leaving little room for maneuver. As a result, rates must rise slightly,” he said.

According to Anh, lending rates in Vietnam are now among the lowest in the region. “Many exporters can borrow at just 4.5-5% per year. There’s a paradox where Vietnamese banks borrow USD abroad at 6% and lend domestically at 4%, simply because there’s little dollar funding available at home,” he said.

Anh added that credit growth this year has been largely driven by FDI enterprises. “Instead of borrowing in their home countries at 6-7%, many are coming to Vietnam to borrow at 4-5%,” he said.

He reiterated that in the short term, interest rates may rise slightly, but the increases will be modest. “Even if rates rise by 0.5-1%, they remain low compared to previous periods and other major economies. Our rates are currently below those in both China and the U.S.,” he said.

Looking ahead, Anh expects that if global conditions improve and the Fed lowers its benchmark rate below 3%, foreign capital could return to Vietnam. “If policies remain stable, this inflow may begin between mid-2026 and 2027,” Anh added.

Reason for the recent increase in interest rates

Pressure on the exchange rate and elevated global interest rates have been the main factors driving a slight increase in domestic lending rates in recent months, according to Anh.

"The most direct and visible factor is exchange rate pressure, which has already reached the upper limit of the central bank’s tolerance band. The full-year target for VND depreciation is 3-5%, and there’s almost no room left to use this policy tool," he told the forum.

“In this context, a slight increase in interest rates is consistent with market conditions,” Anh said. “Higher rates help reduce the attractiveness of holding foreign currencies, thereby supporting the value of the Vietnamese dong.”

Beyond exchange rate factors, the U.S. monetary policy has also significantly influenced Vietnam’s interest rate environment. The U.S. Federal Reserve continues to maintain a tight policy stance, keeping USD interest rates around 3.75-4%. The relatively high level has prompted global capital flows to favor higher-yielding markets, reducing capital inflows into emerging economies.

According to Anh, with global capital yet to return strongly, Vietnam’s room to cut interest rates remains limited. “Policy management must be more flexible to strike a balance between exchange rate stability and growth support,” he said.

Despite external pressures, Anh said Vietnam’s interest rates remain competitive. Lending rates for production and export activities are typically 4.5-5.5%, significantly lower than in the U.S., where average borrowing costs are around 7.5%. “This helps businesses maintain reasonable capital costs and strengthens Vietnam’s appeal to foreign investors expanding production this year,” he added.

Vietnam needs to strengthen foreign reserves: WB economist

Sacha Dray, lead economist at the World Bank in Vietnam, noted that the Vietnamese dong has been under pressure due to widening interest rate differentials between Vietnam and major economies such as the U.S., prompting capital outflows from emerging markets.

He said the State Bank of Vietnam (SBV) has worked to maintain exchange rate stability within the permissible band to stabilize, but this has come at the cost of lower foreign reserves.

Vietnam’s monetary policy remains appropriately accommodative to support growth, but there is limited room for further easing as inflation risks may rise, Dray said.

He recommended that the country maintain a “safety buffer” by strengthening foreign reserves and allowing more exchange rate flexibility to absorb external shocks - an approach that proved effective during the trade tensions of 2018.

Policy coordination key to attracting FDI

Nguyen Xuan Thanh, a senior lecturer at Fulbright University Vietnam, told the forum coordination between monetary and fiscal policies plays a vital role in attracting foreign direct investment (FDI).

He added that if the Fed begins a rate-cut cycle, it would create more favorable conditions for Vietnam’s monetary authorities to manage exchange and interest rates, while reopening opportunities for international capital inflows.

“When external pressures ease, the State Bank of Vietnam will have greater room to adjust policy flexibly to both support growth and maintain macroeconomic stability,” Thanh said.

Fed policy to shape room for Vietnam’s rate cuts

Nguyen Tu Anh, director of research at VinUniversity and former head of the general economic department under the Party Central Committee’s Economic Commission, said that rate cuts by major central banks would create favorable conditions for Vietnam to manage its exchange rate and domestic interest rates.

“If the Fed continues to lower rates, the gap between domestic and foreign rates will narrow, and capital outflows will not be as large as before,” said Anh.

He noted that in 2022, Vietnam maintained a surplus in its financial account, indicating net capital inflows. However, since 2024, while the current account remains in surplus, the financial account has turned to deficit.

“If more U.S. dollars start flowing into Vietnam, the central bank will find it easier to inject dong liquidity into the market, easing exchange rate pressure and creating room to lower interest rates,” he said.

Anh added that a potential risk lies in rising inflation expectations if money supply expands rapidly, suggesting that the CPI basket’s weighting should be updated to better reflect current economic conditions.

Outlook for 2026-2027

MB CEO Anh forecast that interest rates could fluctuate in cycles in 2026. “Rates may ease slightly early in the year when system liquidity improves, then rise modestly in the second half if exchange rate pressure builds or global conditions worsen,” he said, adding that such adjustments would likely be minor and within a range that supports macroeconomic stability.

In the long term, when the Fed lowers interest rates below 3% and Vietnam's economy recovers strongly, international capital flows may return with greater intensity. “If global capital flows shift positively and domestic fundamentals remain stable, Vietnam will have room to lower rates more significantly from the second half of 2026 through 2027,” the MB CEO added.