As the Middle East conflict drags on, inflationary pressures in Vietnam have mounted amid still-resilient economic activity, based on the latest April 2026 data. Given these persistent dynamics, together with no clarity on the resolution of the Iran war and the reopening of the Strait of Hormuz, we now expect the State Bank of Vietnam (SBV) to hike its refinancing rate by 50bps to 5.00% in 2026, potentially as early as 2Q26. We have already identified Vietnam as being in the hawkish camp among regional central banks (see ‘ASEAN-6: Exposure and response to the Gulf shock’). It is increasingly likely that policymakers will prioritise inflation-fighting credibility and lean towards a hawkish stance to curb price pressures and anchor inflation expectations. Spiralling inflation would undermine macroeconomic stability and future growth prospects.
Headline inflation accelerated to 5.5% yoy in April, rising sharply by 0.8 percentage points from March, and remaining above the SBV’s 4.5% average target in 2026 for the second consecutive month, with the real refinancing rate in negative territory. Higher overall inflation in April was driven not only by faster increases in transport prices amid elevated global energy prices, but also by higher construction material costs due to rising input and transport costs, as well as elevated food inflation. Core inflation also quickened to 4.7% yoy, its highest rate in about three years. Near-term price pressures will likely remain elevated, driven by high energy prices and broadening cost pass-through amid Vietnamese dong weakness. We are raising our 2026 average headline inflation forecast to 4.8% (from 3.8% previously), against this backdrop and average inflation of 4.0% in the first four months of the year. The authorities have indicated that inflation could reach as high as 5.5% this year. The scope to tighten monetary policy is supported by still-resilient economic conditions, with goods exports expanding by a robust 21.0% yoy in April, while realised foreign direct investment and retail sales rose by 9.8% yoy and 11.1% yoy, respectively, in the first four months of 2026.
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