US tapering: China urged to make preparations for ‘spillover’ after Fed confirms tapering

The Federal Reserve said on Wednesday it would start unwinding its pandemic stimulus, which could weaken China’s currency

Although the decision was well telegraphed, analysts say China should be prepared to ‘counter’ unexpected consequences

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Tighter US monetary policy could weaken China’s currency. Photo: AP

Published: 7:30pm, 4 Nov 2021Updated: 10:45pm, 4 Nov 2021

China’s yuan appreciated slightly on Thursday, defying expectations it would weaken on imminent tapering from the US Federal Reserve, although Beijing has been warned to prepare for “possible spillover”.

Federal Reserve chair Jerome Powell announced on Wednesday asset purchases would be scaled back by US$15 billion a month. Some analysts predict the tapering to be finished by June next year and it is likely to be followed by rate hikes.

The US central bank’s move to unwind its massive pandemic stimulus is a key external uncertainty facing the world’s second largest economy, which could trigger capital outflows and weaken the Chinese currency.

“The Federal Open Market Committee (FOMC) statement is well in line with market expectations, and the financial market is overall stable,” said Wen Bin, chief analyst of China Minsheng Bank.

To counter possible spillover, China should maintain an independent monetary policy and make preparations with a more forward-looking approach

Wen Bin

“To counter possible spillover, China should maintain an independent monetary policy and make preparations with a more forward-looking approach.