Experts: US Fed tightening could undermine global economy
The cycle of interest rate hikes in the United States could last longer than expected, underscoring the need for China to protect itself against external headwinds by stimulating domestic demand while taking into account the stability of capital flows. cross-border, experts said Thursday.
They commented as the US Federal Reserve on Wednesday made a third consecutive 75 basis point hike in interest rates to beat inflation, taking the federal funds rate to a new target range of 3% to 3, 25%.
More outsized rate hikes are on the way, with Fed policymakers expecting the federal funds rate to rise to 4.4% by the end of the year, significantly higher than the 3.4% projected in June.
The rate hike cycle could also last longer than expected. Fed policymakers expect the fed funds rate to hit 4.6% by the end of next year and 3.9% by the end of 2024, indicating that rate cuts may not intervene until 2024, defying expectations that the Fed could start cutting rates next year.
Officials and experts have warned that the Fed’s stronger and longer-than-expected rate-hike cycle could undermine the global economy by increasing economic downside risks, deflating currencies other than the dollar and causing capital outflows from many emerging economies while threatening their debt sustainability.
Foreign Ministry spokesman Zhao Lijian told a press conference on Thursday that the Fed’s aggressive rate hikes have exposed many developing economies to the ramifications of currency depreciation, capital outflows and the rising debt burden, adding pressure on the global economy.
As the U.S. dollar index hit a two-decade high, the renminbi’s onshore exchange rate against the dollar weakened to 7.09 on Thursday from 7.0535 at Wednesday’s close.
Chinese stocks fell slightly on Thursday, with the benchmark Shanghai Composite Index falling 0.27% to close at 3,108.91 points.
With a large domestic market and its currency’s more flexible exchange rate, experts said China would be able to weather headwinds from Fed tightening, but the need to boost economic growth and stabilize expectations on the foreign exchange market increased.
“Only when the domestic economic growth outlook improves can cross-border financial risks be effectively warded off,” said Luo Zhiheng, chief economist at Yuekai Securities.
Luo said it was smart for the country to cushion global downward pressures by making good use of tax breaks for manufacturers, reducing financing costs, accelerating infrastructure investment and pushing reforms. market-oriented to restore business confidence.
As part of China’s increased efforts to increase investment, the People’s Bank of China, the country’s central bank, said on Wednesday it had drawn up a “white list” of infrastructure projects to facilitate their debt financing. , whose outstanding loans exceeded $650 billion. yuan ($91.9 billion).
Cheng Shi, chief economist at ICBC International, said the impact of Fed rate hikes on China’s real economy should be limited as the country still has enough room to maneuver thanks to its low level. of inflation.
Nevertheless, the central bank may be more cautious about reducing benchmark lending rates and bank reserve requirements over the rest of the year, due to the need to balance the stabilization objectives of growth and stability of the foreign exchange market, Cheng said.