China better placed to prevent, defuse risks of external shocks ahead of Fed rate cut, forex regulator says
- The US Federal Reserve is widely expected to start hiking interest rates as early as March
- During the previous round of US Federal Reserve tightening in 2018, China’s currency depreciated sharply.
China must prevent and defuse the risk of external shocks this year while strengthening macroprudential management and guiding market expectations, the country’s foreign exchange regulator said on Friday.
During the previous round of US Federal Reserve tightening in 2018, China’s currency depreciated sharply.
China is better able to cope with external changes, and “this round of tightening by the Federal Reserve may have less spillover effect than the previous round,” Wang Chunying, spokeswoman of the State Administration of Foreign Exchange, told a news conference on Friday.
In the face of this round of Fed tightening expectations, both cross-border loans or capital flows related to trade financing are relatively stable
On Wednesday, Chinese government bond yields fell across the curve after an official’s comments heightened expectations that the country’s benchmark lending rate would be cut as early as this week to shore up the cooling economy.
“In the face of this round of Fed tightening expectations, both cross-border loans or capital flows related to trade financing are relatively stable,” Wang said.
China urged to ‘hurry up’, stay ahead of the curve to avoid credit ‘collapse’
China’s current account surplus to gross domestic product ratio for 2021 was tentatively estimated to be within 2 per cent, Wang added.
Meanwhile, China was on Friday expected to cut the interest rates on a key monetary policy tool by which financial institutions can obtain temporary liquidity from the central bank, three sources with direct knowledge of the matter said.
The 10-basis-point cut in the rates on People’s Bank of China’s (PBOC) standing lending facility (SLF) loans follows a series of reductions in China’s key interest rates, as Beijing eases monetary policies to stabilise a slowing economy.
The borrowing cost on overnight, seven-day and one-month SLF loans will be lowered by 10 basis points, to 2.95 per cent, 3.10 per cent and 3.45 per cent, respectively, according to the sources.
The PBOC did not immediately respond to a request from Reuters for comment.
SLF was created by the PBOC in 2013 to meet temporary liquidity needs from financial institutions, and its interest rates are determined by monetary policy directions and other money market rates in China.
Chinese banks can borrow SLF loans from the PBOC using qualified bonds and other credit assets as collateral.
