Fed interest rate pause set to give China room to focus on its economic stability
- The US Federal Reserve lifted its benchmark lending rate to the highest level since September 2007, but hinted at an imminent pause of its aggressive increase cycle
- China ‘will continue to focus on domestic issues and the economic stability’, while it will also alleviate pressure on yuan exchange rates, analysts said
China now has more policy space to fund the weak links of the world’s second-largest economy after the US Federal Reserve hinted at an imminent pause of its aggressive interest rate increase cycle that has haunted emerging markets and triggered calls to reduce use of the US dollar, analysts said.
The waning overseas spillover, they added, would allow Beijing’s policymakers to concentrate on shoring up the domestic economy, especially as the recovery of the manufacturing sector continues to lag behind, while more is needed to boost the property market.
The People’s Bank of China (PBOC) set the daily yuan reference rate at 6.9054 against the US dollar on Thursday, strengthening from 6.9240 on the previous trading day before the five-day “golden week” holiday, which ended on Wednesday.
This was despite its US counterpart earlier raising its benchmark lending rate to the highest level since September 2007 after lifting the range by 25 basis points to between 5 and 5.25 per cent.
Overall, China will continue to focus on domestic issues and economic stability
China’s central bank also kept the rate of the seven-day reverse repo, a regular liquidity injection tool, unchanged at 2 per cent when it sold 33 billion yuan (US$4.8 billion) on Thursday morning.