Fed interest rate stance could help ‘pummelled’ yuan, China could feel ripple effects of 2024 cuts
- US Federal Reserve voted to keep its benchmark overnight borrowing rate steady at between 5.25 and 5.5 per cent, but said cuts could begin to ‘come into view’
- Observers said China’s yuan, exports and capital flows could benefit from the dovish monetary stance, but still pointed to domestic policy as a key driver for the economy
The US Federal Reserve’s dovish monetary stance and its hint of three interest rate cuts in 2024 may bring some relief to Chinese businesses and the yuan, said analysts and academics, who urged for Beijing to focus on stronger domestic policy to sustain an economic recovery.
Li Daxiao, chief economist at the Shenzhen-based Yingda Securities, said the monetary policies of China and the US may become more aligned in 2024.
“Without the overhanging concern of a strengthening US dollar, it will help the Chinese economy and we will have a better external environment,” said Li.
“The outflow of capital could be slowed, or even reversed, and the interest spread between the two countries can be dramatically narrowed. The yuan, once pummelled, will regain much of the lost ground.”
There are some ripple effects and some relief, but what determines the Chinese economy is of course our domestic policy choices
But Zhu Tian, a professor of economics at the China Europe International Business School, said the benefits for the Chinese economy could be overblown.