Xinhua Finance, Beijing, May 5 (Reporters Zhang Mo, Zhou Wuying) “Economic Information Daily” published an article on May 5, “Fed rate hike expectations cool down, my country’s cross-border capital flows remain stable.” According to the article, the US Federal Reserve Board (hereinafter referred to as the Fed) ended its two-day monetary policy meeting on the 3rd and announced that it would raise the target range of the federal funds rate by 25 basis points to between 5% and 5.25%. Based on Fed Chairman Powell’s statement, the market generally judges that the Fed’s interest rate hike cycle is coming to an end, but there are still differences on whether it will cut interest rates.
Industry insiders believe that the uncertainty of the Federal Reserve’s monetary policy is bound to have an impact on the global financial market and capital flows. However, my country’s economy is stabilizing and the financial market continues to open, and cross-border capital flows will remain stable. The domestic monetary policy also has a relatively flexible operating space and can continue to maintain a high level of autonomy.
The Fed’s interest rate hike cycle may be coming to an end
This rate hike is the 10th rate hike since the Fed entered the current rate hike cycle in March 2022, with a cumulative rate hike of 500 basis points. The Fed will also continue to reduce its holdings of U.S. Treasury bonds and agency bonds in accordance with previously announced plans, and is committed to reducing the inflation rate to the target level of 2%.
Federal Reserve Chairman Powell said at a press conference held after the meeting that the monetary policy meeting that ended that day did not make a decision to suspend interest rate hikes. If more restrictive monetary policy is required, the Fed is prepared to do so. The pullback in inflation will take some time, and it may well be appropriate to consider a rate cut only after demand and the job market have weakened further.
However, market participants also noted that Fed officials removed phrases such as “some additional policy increases may be appropriate” from the March policy statement. Market participants believe that this implies that the Fed’s interest rate hike may end the current cycle of interest rate hikes, but considering other statements, there is still room for further interest rate hikes.
“We judge that with the cumulative effect of policy tightening and credit tightening caused by the banking crisis, the cooling trend of the U.S. economy is more significant. At the same time, the financial system is still relatively vulnerable, and financial risks have not yet been fully cleared. The Fed weighs multiple policy goals. , There is a high probability that interest rate hikes will be suspended from June, but the possibility of additional interest rate hikes cannot be completely ruled out.” said Bai Xue, an analyst at Dongfang Jincheng Research and Development Department.
Before and after the Fed raised interest rates this time, the Central Bank of Argentina, the Central Bank of Australia, and the European Central Bank also successively announced interest rate hikes. However, on the whole, the monetary policy tightening of major developed economies is shrinking and the pace is slowing down.
Fluctuations in interest rate hike expectations have limited impact on my country
The market is still divided on whether the Fed will start to cut interest rates this year, but a more consistent view is that the Fed is near the end of its current rate hike, and the possibility of further rate hikes in the future is weakening. However, the market still needs to keep a close watch before the Fed sends a clear signal to stop raising interest rates.
Industry insiders said that the uncertainty of the Federal Reserve’s monetary policy is bound to have an impact on the global financial market and capital flows, but the overall impact on my country is limited.
Wang Qing, Chief Macro Analyst of Dongfang Jincheng, said that no matter whether the Fed’s interest rate hike in May is the last of the current cycle of interest rate hikes or whether there will be any changes in the subsequent balance sheet reduction process, it will not have a significant impact on my country’s domestic policies. “The current macroeconomic background of China and the United States is very different. The downward trend of the U.S. economy is relatively obvious recently. The consumer price index (CPI) will still be much higher than the target level of 2.0% year-on-year in the future, and the risks of the banking industry are continuously exposed. Under the multiple difficulties, the room for the Federal Reserve’s monetary policy operations is greatly limited. On the contrary, my country’s domestic macro economy has turned to the process of rebounding since the first quarter, and inflation has continued to be low.RMBThe trend of the exchange rate is stable, and the overall fluctuation is not large. The domestic monetary policy has a relatively flexible operating space and can continue to maintain a high level of autonomy. “
Zou Lan, director of the Monetary Policy Department of the People’s Bank of China, said at a press conference earlier that the recent central bank interest rate hikes in major developed economies are expected to fluctuate greatly, and overseas bank risk events have also triggered financial market volatility.dollar indexThere is a callback, and the overall impact on our country is limited. my country’s foreign exchange market is operating smoothly, market expectations remain stable, and the RMB exchange rate fluctuates in both directions.
my country’s cross-border capital flows continue to balance
From the perspective of the trend of my country’s foreign exchange market, Wang Chunying, deputy director and spokesperson of the State Administration of Foreign Exchange, previously stated that since the beginning of this year, the Fed’s tightening monetary policy has slowed down. The inversion of interest rate differentials between China and the United States tends to converge, so the external influence on us may weaken.
Looking back at last year, the Federal Reserve quickly tightened monetary policy, and the US dollar exchange rate and interest rates both rose significantly. The scale of cross-border bond investment absorbed by countries around the world has decreased significantly, and the stock markets of major emerging economies have seen capital withdrawals. Under such circumstances, China is also facing an inversion of interest rate differentials between China and the United States, and foreign capital in the securities market has also adjusted, but the overall situation has remained stable.
Lou Feipeng, a researcher at Postal Savings Bank of China, said that as the Fed’s room to raise interest rates decreases or may even be lowered, coupled with factors such as my country’s relatively sound economic fundamentals and the risk of economic recession in the United States, my country’s attractiveness to international capital will increase.
Cheng Shi, Chief Economist of ICBC International, told reporters that during the period when the Federal Reserve is suspending interest rate hikes, more cross-border funds will enter the Chinese market as the Chinese economy recovers and expectations of a potential recession in the U.S. economy intensify. According to his analysis, entering the second quarter, affected by holidays and seasonal factors, China’s economic data is expected to exceed market expectations, and the Fed’s suspension of interest rate hikes will help attract more funds to China. Entering the third and fourth quarters, as the base effect of China’s economy and seasonal factors subside, as well as the suppression of domestic demand by the interest rate hike policies of Europe and the United States, the weakening of export activities may weaken the impetus for the inflow of foreign funds. However, if China’s macroeconomic policies can effectively support the steady recovery of economic activities, it will still ensure the balance of cross-border capital flows.
Editor: Ma Mengwei
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