- Since we published our flagship report on the seminal structural reforms happening in Vietnam, the domestic story and impact to Vietnam’s markets has generally played out according to what we have expected (see Vietnam: Doi Moi 2.0 – The most ambitious structural reforms since 1986). We have seen a strong unleashing of domestic private sector confidence and as such lifting GDP growth. Meanwhile, there has been some pressure for VND to weaken with SBV pushing back against the pace of depreciation, while interbank rates have risen sharply amidst strong credit growth.
- Moving forward, we continue to forecast USD/VND climbing towards the 26,800 level through 2026, implying steady and managed pressure for FX weakness. While exports and FDI have been stronger than expected and should remain robust in 2026, for VND FX and rates this is outweighed by a continued push for domestic growth and as such some capital outflow pressure.
- Ultimately, we think the domestic interest rate structure is probably too low right now for where Vietnam’s growth rate is expected to be in 2026. There is as such also some modest risk of overheating in the economy, especially if Vietnam pushes to accelerate domestic growth harder in order to achieve the ambitious GDP growth target of 10% for 2026.
- It’s important to emphasise we remain very positive on the structural reforms happening in Vietnam, which should over time help to unleash productivity and the binding constraints to growth over the medium-term (see Vietnam: Doi Moi 2.0 – The most ambitious structural reforms since 1986).
- From a rates perspective, we think interbank rates will remain sticky above 6% through 2026 given strong credit growth and the desire to control the pace of FX depreciation.
- We now see the State Bank of Vietnam hiking the official refinancing policy rate once in 2H26 by 25bps – but admittedly this is a close call. With the Fed also expected to cut rates further in 2026, this may allow onshore FX forward caps to become less binding into next year.
- Key risks include new rules of origin and transshipment tariffs, uncertainty around the implementation of the US-Vietnam trade deal, and sharp FX weakness. In addition, markets and investors will look closely for hints of any changes in policy direction in the lead-up to the 14th National Congress happening in January 2026.
- We raise our 2025 and 2026 GDP forecasts for Vietnam to 7.7% and 8.2% respectively, given stronger than expected exports, together with continued momentum in the domestic economy. Vietnam’s export performance has been much more robust than we have anticipated growing at close to 17%yoy in 2025. We note that this has been a strong performance across the board with electronics exports rising 28%yoy for instance and machinery exports growing 14%yoy. Exemptions from US reciprocal tariffs for products such as electronics of course help, and outside of these we see some signs of a slowdown in categories such as textiles which grew around 7%yoy in 2025 YTD from 10%yoy in 2024, with November numbers slowing to +0.1%yoy. FDI has also held up better than we have anticipated at 10%yoy in 2025, with total registered FDI capital also remaining robust. Our assumption is that Vietnam and the US should ultimately signing a trade deal officially, and this should increase business certainty supporting growth momentum, although right now there are likely still some sticking points including on the US’ proposed insertion of so-called “poison pill” clauses (Article 5.1 in the US-Malaysia deal).
- The domestic demand and structural reform story remains key, and this has played out as we have anticipated with sticky interbank rates and gradually weakening FX. In many ways, the domestic story including on structural reforms has played out according to how we have expected, with a strong push for public infrastructure spending and the unlocking of private sector confidence providing an important boost to domestic confidence and demand (see Vietnam: Doi Moi 2.0 – The most ambitious structural reforms since 1986). The flipside as we have pointed out is the risk of overly strong credit growth, which continues to grow robustly at more than 19%yoy so far in 2025. Vietnam’s authorities and key leadership have approved a plan to target 10% GDP growth for 2026, and coming on the back of a 8% growth target for 2025, and ahead of the 14th National Party Congress in January next year. We think these policy directions and emphasis on growth raise some modest risk of the economy overheating, and as such FX weakening at a sharper pace next year. While we remain very positive on the longer-term potential of Vietnam’s structural reforms to unlock the binding constraints to growth, we continue to see some risk that Vietnam’s economy grows somewhat above trend, at least until productivity improvements dominate. From a rates perspective, we have been already been expecting interbank rates to remain elevated due to strong demand for credit. 3-month interbank rates have climbed given strong pressures to fund domestic credit growth, SBV net withdrawing VND liquidity through OMOs, coupled with unequal distribution of banking system liquidity between the larger and smaller banks.
- We see USD/VND climbing towards 26,800 in 2026 but for now we see sharp FX spikes as unlikely. We also expect effective rates to remain sticky above 6%. SBV has been pushing back against VND weakness in the latter part of 2025 by selling so-called cancellable FX forwards, and also capping the FX ceiling rate at a stable level. More recently, SBV has also been trying to manage the sharp spikes in interbank rates by conducting FX buy/sell swap in short-tenors to inject more VND liquidity into the banking system. The flipside of a stable FX fix coupled with rising interbank rates is that onshore FX forwards have risen above FX forward cap ceilings for many tenors. Putting it all together, we think that SBV will ultimately have to relieve some pressure on the exchange rate and as such we expect SBV to eventually allow USD/VND to rise gradually from 2026. With the domestic economy and credit growth likely to remain strong, we think that effective interbank rates will remain elevated through next year. It is a close call but we think SBV may raise the official policy rate in 2H2026.
- Key risks moving forward include newly defined rules of origin for transshipment tariffs, the implementation of the US-Vietnam trade framework, coupled with sharp FX weakness. Our analysis of detailed HS 6-digit product codes shows us that the most egregious transshipment of products from China through Vietnam to the US may make up only 10-20% of the increase of exports so far this year, and even here this is probably an upper-end estimate. More broadly however, how the US defines new rules of origin for transshipment tariffs, and likely in the form of a certain percentage of domestic value-added could matter greatly for the impact to Vietnam’s exports. Another key risk to watch for includes the current negotiation and implementation of the US-Vietnam trade framework.
