MONETARY MARKET UPDATE AUGUST 2025: BALANCING BETWEEN MONETARY EASING AND FX STABILITY
In August 2025, the SBV continued to support system liquidity, with outstanding collateralized lending peaking in mid-August before gradually declining thereafter.At the same time, banking system liquidity showed signs of stress in the first half of August and gradually eased afterward. As of August 22, the overnight VND lending rate had fallen to around 4.8%, still about 50 basis points higher than the USD overnight lending rate.
Two notable policy developments during the month were: (1) Circular 23/2025, which allows a 50% reduction in required reserves for credit institutions that take over or provide support to weak banks, effective from October 1, 2025; and (2) the Government’s directive for the SBV to formulate a roadmap to pilot the removal of credit growth limits starting in 2026. Essentially, Circular 23 operationalizes provisions in the 2024 Law on Credit Institutions regarding the benefits granted to commercial banks undertaking compulsory acquisitions of weak banks (including VCB, MBB, VPB, and HDB), with the expectation of freeing up additional resources to restructure the so-called “zero-dong” banks.
Following the SBV’s gradual increases in the central exchange rate in the previous month, market exchange rates rose more sharply in August, up 0.4–0.6% compared to the prior month. At one point on August 21, VCB’s selling rate even touched the upper bound of the trading band, before the SBV intervened by selling FX on a forward basis.
In our view, the VND-USD interest rate differential and DXY fluctuations are not the main sources of exchange rate pressure at present. Instead, pressure on the dong stems not only from rising USD demand, but also from expectations of dollar hoarding in the context of the SBV’s ongoing monetary easing aimed at supporting growth.
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