With US interest rates at a 22-year high, how will Beijing’s new central bank chief counter the toll on China?
- US Federal Reserve lifted interest rates to the highest level in 22 years on Wednesday, posing a challenge to China’s newly appointed central bank governor, Pan Gongsheng
- Over the past few weeks, China’s central bank has delivered stronger than expected daily yuan fixings to stem currency weakness, and has also eased some restrictions
Ongoing interest rate increases by the US Federal Reserve underpin the first major challenge for China’s newly appointed central bank governor tasked with defusing financial risks, curbing capital flight and getting the nation’s sputtering economic recovery back on track.
The US Federal Reserve lifted its interest rates to a range of 5.25 to 5.5 per cent on Wednesday, marking the 11th increase since early 2022 and the highest level in 22 years as the central bank attempts to cool the economy and ease price inflation.
The US rate increases have added pressure on the yuan, another consideration that Beijing has to take into account, as there are rising risks in various parts of the economy, including bleak export prospects, growing deflation risks, a lack of business confidence, mounting local government debts, a beleaguered property market and heightened US-led de-risking pressure.
Mr Pan has a reputation for regulation and compliance which may mean that shifts towards a more expansionary monetary policy could come in measured steps
The Politburo, the prime decision-making body of the Communist Party, ordered the basic stability of yuan exchange rate to be maintained, countercyclical policy adjustments to be enhanced and monetary support for innovation and market entities.
Pingan Securities said on Tuesday that it was the first time that the leadership had mentioned the exchange rate since the yuan started to depreciate against the US dollar last year. The yuan has fallen by 3.3 per cent against the US dollar since the start of this year.