Fed rate increase limits China’s central bank’s ability to help struggling economy battling US trade tensions
- A cut in benchmark interest rates could have put significant downward pressure on the yuan exchange rate
- The People’s Bank of China did announce a modest Targeted Medium-Term Lending Facility rate cut just hours before the US Federal Reserve raised its borrowing costs
China’s central bank is once again hemmed in by higher interest rates in the United States, limiting its ability to ease monetary policy to support a slowing domestic economy, analysts said.
Nevertheless, The People’s Bank of China (PBOC) did not sit idly by, announcing a modestly lower interest rate for a new lending tool that it unveiled just hours before the US Federal Reserve announced its rate increase.
Despite recent volatility in stock markets and signs of slowing global growth, the US Federal Reserve went ahead on Wednesday and raised its target for the federal funds rate by a quarter of a percentage point to a range of 2.25 per cent and 2.50 per cent.
While it lowered its projection of further rate increases to two from three in 2019, the Fed comments in general were not as dovish as the market had hoped for, with the central bank’s statement highlighted the strengthening of the US labour market as well as household spending.
