Looking ahead to 2025, the USD/VND exchange rate is expected to provide ongoing issues, prompting the SBV to use its previous experience controlling volatility to ensure VND stability in the new economic scenario.

Reviewing Exchange Rate Pressures

In response to economic difficulties, Vietnam's monetary policy has changed from tightening to relaxation from October 2022. Despite this transition, the SBV took significant steps in contrast to many other nations that were quickly raising interest rates, led by the US Federal Reserve (FED). In early 2022, the Fed began its quickest rate-raising cycle, and it did not begin lowering rates until September 2024. This sustained interest rate differential between the VND and USD caused swings in the USD/VND exchange rate within Vietnam's currency basket.

The depreciation of the VND resulted in ongoing net foreign selling in the stock market, totaling nearly USD 3.6 billion by 2024. However, drawing on its success in regulating exchange rates, preserving macroeconomic stability, and lowering inflation in 2023, the SBV implemented proactive efforts to efficiently regulate exchange rate swings. This was especially important because the U.S. Dollar Index (DXY) fluctuated significantly, causing the devaluation of numerous currencies tied to the USD.

According to WiGroup data, the SBV sold approximately USD 22 billion in foreign exchange reserves to manage these fluctuations, with around USD 6–7 billion sold in 2024 alone. As a result, foreign exchange reserves now stand at USD 87 billion, equivalent to approximately three weeks of imports. It is estimated that the VND depreciated within a range of less than 5% throughout 2024.

Confidence in the VND

In its final meeting of 2024, the FED lowered its benchmark interest rate by 25 basis points to 4.25%–4.5%. Additionally, FED Chair Jerome Powell indicated that only two rate cuts are expected in the coming year, down from the four cuts projected earlier in September.

Following the FED’s announcement, the DXY surged above 108, its highest level in two years, exerting pressure on the USD/VND exchange rate. On December 19, the SBV continued selling USD to meet the demands of commercial banks. If the USD continues to appreciate, further pressure on the exchange rate may force the SBV to intervene by utilizing its foreign exchange reserves.

However, according to Mr. Trần Ngọc Báu, CEO of WiGroup, Vietnam’s current reserve levels are approaching a “sensitive threshold.” As such, the SBV will need to take advantage of periods when the exchange rate stabilizes, foreign currency demand is low, and supply is abundant to rebuild reserves and strengthen its buffer against future volatility. This is a key challenge for policymakers, particularly as Vietnam remains on the U.S. Treasury's watchlist for potential currency manipulation.

A second challenge lies in the FED’s projected fewer rate cuts in 2025, reduced from the previous market expectation of 4–6 cuts. This means that the interest rate differential between the VND and USD will remain wider for longer than anticipated. Additionally, trade policies under President Trump’s second term could potentially drive inflation higher, leading the FED to adopt a more cautious approach or even reverse its policy direction, as warned by Chairman Powell.

However, Dr. Phạm Thế Anh, Head of Economics at the National Economics University (NEU) and Chief Economist at the Vietnam Institute for Economic and Strategic Studies (VESS), believes that in the long term, Trump will not be able to impose tariffs in a harsh and unilateral manner but will have to negotiate. This suggests a less tense trade environment than anticipated, with U.S. inflation potentially remaining on track toward the 2% target, which could allow for further FED rate cuts and a more stable USD, easing depreciation pressures on currencies pegged to the USD. Nevertheless, Dr. Phạm Thế Anh emphasized that tariff policies and U.S. inflation remain uncertainties that must be closely monitored.

Exchange Rate Outlook for 2025

Brian Lee Shunrong, an economist at Maybank Investment Bank Group, forecasts that in alignment with Vietnam’s GDP growth objectives, the SBV is likely to maintain its policy interest rates in 2025. With moderate inflation and a stable VND, the SBV can continue its monetary easing stance, keeping the exchange rate within a projected range of ±3% to 5%.

In a longer-term perspective, financial expert Dr. Đinh Thế Hiển shared with Doanh nghiệp that Vietnam’s proactive approach to reforms, streamlining government operations, and fiscal discipline will significantly strengthen the fundamentals of the VND. According to him, while immediate fiscal spending may still be necessary in 2025 to cover budget deficits, by 2027, cost savings from reducing excess government staffing will help expand investment budgets and facilitate economic growth.

As Vietnam strengthens its economic fundamentals and achieves positive GDP growth, more attractive sectors will bolster confidence in the discipline and value of the VND.