Recent policy moves by regulators appear to prioritize exchange rate stability over interest rates. This may be a reasonable choice at the current stage, as maintaining exchange rate stability while accepting a higher interest rate environment can help contain inflation. However, an unintended consequence could be a negative impact on economic growth this year. When monetary policy space narrows On March 26, 2026, the State Bank of Vietnam (SBV) decided to sell 180-day revocable forward foreign currency contracts to credit institutions at a rate of VND26,850 per U.S. dollar, about 2% higher than the spot selling rate listed by the SBV’s Foreign Exchange Department at the same time. This move came amid a strong rise of the U.S. dollar in international markets and mounting pressure on the domestic foreign exchange market, reflected in the unofficial market rate at times exceeding VND28,000 per U.S. dollar, while bank selling rates approached the ceiling of the central exchange rate band. The choice of revocable forward sales aims to ease pressure on foreign currency demand in the short term, thereby helping to cool exchange rates. It is important to note that whenever exchange rates surge, institutions tend to hoard foreign currency out of concern […]