Federal Reserve Rate Cut Signals Relief for Vietnamese VND and Macroeconomic Stability
On September 17, the Federal Reserve’s benchmark interest rate was lowered by 25 basis points, reaching 4.00–4.25 percent.
This marked the first reduction this year, providing significant relief to the mounting pressure on the USD/VND exchange rate and supporting Vietnam’s crucial macroeconomic stability.
This action by the US central bank had an immediate and positive effect on the Vietnamese Dong.
On the very same day, the Vietnamese currency continued its strengthening trend, with the State Bank of Vietnam (SBV) setting the central rate at VND25,186 per USD, a decrease of VND12 from the preceding session.
This positive movement marked the tenth consecutive session without an uptick since the exchange rate peaked at VND25,248 per USD on September 4.
Assoc. Prof., Dr Tran Hoang Ngan, a National Assembly delegate and respected economist, described the Fed’s decision as a fundamentally positive signal for Vietnam’s economy.
He noted that “The Fed’s rate cut will ease pressure on the exchange rate from now until the end of the year.”
This reduction in external pressure is expected to have a cascading effect, helping to stabilize the macroeconomy and subsequently lowering interest rates on the Vietnamese Dong in the coming months.
This monetary easing will be critical in supporting domestic businesses, enabling them to borrow capital more affordably and expand production vigorously during the final quarter of the year, providing a necessary boost to economic activity.
Analyzing the Four Key Transmission Channels of US Monetary Policy
Economists have identified four primary channels through which the Federal Reserve’s monetary policy action directly impacts the Vietnamese economy, leading to lower costs, increased investment, and enhanced market stability.
Assoc. Prof. Dr. Dinh Trong Thinh, former head of the International Finance Department at the Academy of Finance, analyzed the four key transmission channels of the Fed’s move for Vietnam.
First, he noted that lower US interest rates will stimulate domestic consumption and investment in the US, thereby boosting the US demand for imports, which directly benefits Vietnam’s robust export sector.
Second, a dollar that is comparatively weaker reduces the USD/VND exchange rate pressure in Vietnam, which in turn eases the cost of crucial imports for Vietnamese businesses and consumers.
Third, the cost of borrowing and investment in foreign currency for both Vietnamese firms and the government will fall significantly, freeing up capital for domestic deployment.
Finally, he explained that the stock market and foreign portfolio inflows are expected to gain momentum as cheaper global capital flows out of the US and into more attractive emerging markets such as Vietnam, providing liquidity and strengthening financial assets.
Despite these benefits, UOB’s Global Economics and Market Research noted in its Vietnam Economic Growth Forecast for Q4/2025 that the VND had weakened to a record low of 26,436 per USD in August, a 3.4 percent year-to-date decline.
The report also highlighted external trade uncertainties, stating that “uncertainty over a potential 40 percent transshipment tariff may prompt firms to reassess supply chains, reducing Vietnam’s appeal for foreign investment,” which serves as a necessary counterbalance to the positive effects of the softer Federal Reserve Rate.
Monetary Policy Constraints and the Window of Opportunity
Despite the global easing trend initiated by the Federal Reserve, the State Bank of Vietnam faces constraints on further monetary policy easing due to persistent currency weakness and rising domestic credit demand, making the effective use of cheaper global capital critical for sustained growth.
Looking ahead, UOB projects that the Vietnamese Dong (VND) will likely lag behind other regional currencies, even with renewed USD softness as the Federal Reserve begins its rate-cutting cycle.
UOB forecasts the USD/VND exchange rate to be 26,300 in Q4 2025, gradually easing to 26,200 in Q1 2026, 26,100 in Q2, and 26,000 in Q3.
UOB added that the combination of robust domestic growth prospects in the second half of 2025 and the persistent weakness of the VND are “likely to constrain the SBV’s ability to ease monetary policy.”
Consequently, the refinancing rate is expected to remain steady at 4.5 percent, with the central bank only considering a one-off cut to the pandemic low of 4 percent in the case of a sharp and unexpected downturn in business activity or labor markets, though this is not the base expectation.
Recent exchange rate pressures have severely limited the SBV’s room for further cuts in deposit and lending rates.
Concurrently, rising credit demand, especially during the year-end business peak, has prompted commercial banks to step up mobilization efforts, inherently making it difficult to keep funding costs at persistently low levels.
Nguyen Quang Huy, CEO of the Finance and Banking Faculty at Nguyen Trai University, emphasized that the Fed’s 25-basis-point cut could signify the start of a broader global monetary easing cycle, marking a “crucial window of opportunity” for Vietnam to stabilize its exchange rate and substantially expand its growth potential.
He cautioned, however, that the benefits of cheaper capital would only prove sustainable if effectively tied to rigorous macroeconomic stability.
Directing Capital and Ensuring Sustainable Growth
The newly opened window of cheaper international capital presents a critical opportunity for Vietnam, but realizing sustainable growth hinges entirely on the country’s capacity to effectively direct credit flows into productive, long-term growth sectors.
Huy explained that lower Federal Reserve rates reduce the pressure on Vietnam to maintain high domestic rates, creating necessary room for commercial banks to finally cut borrowing costs for customers.
This increase in liquidity would also serve to strengthen the domestic banking system and encourage responsible credit expansion.
As borrowing costs decline, both businesses and households are naturally expected to expand loans for production, investment, and consumption.
This cycle supports the vital exports sector while simultaneously stimulating activity in real estate, infrastructure, and domestic consumption.
Huy summarized the situation by stating, “The Fed has opened a ‘cheap capital window’ for emerging economies.”
He stressed that whether Vietnam can successfully convert this opportunity into sustainable, long-term growth depends entirely on how effectively it directs credit flows and coordinates its fiscal, monetary, and institutional policies.
Crucially, he advised that capital must be strongly channeled into production, technological innovation, and other long-term growth sectors, rather than being diverted into excessive short-term speculation that could destabilize the market.
MBS Research’s money report, published on September 12, projected that deposit rates would face upward pressure from rising credit growth toward the year-end, especially after the SBV’s recent announcement of higher credit growth quotas for banks to meet the economy’s funding needs.
The report noted that deposit rates have been kept stable thanks to ample liquidity following large net injections by the SBV in June and July, which has allowed banks to maintain relatively low lending rates in line with government directives to support economic expansion, ultimately benefiting Vietnamese firms.
MBS Research forecasts that the average 12-month deposit rate among private joint-stock commercial banks may ease slightly by 0.02 percentage points to 4.7 percent by the end of 2025.
