ANN/CHINA DAILY – Renminbi-denominated financial assets are likely to see more foreign capital inflows in the months ahead as the United States (US) enters an interest rate cut cycle, giving Chinese policymakers more room to maneuver toward steady economic growth, analysts said.
The renminbi and Chinese equities rallied after the US Federal Reserve’s first rate cut in over four years.
The renminbi, or the Chinese yuan, strengthened by 293 basis points in the onshore market to 7.06 against the US dollar on Thursday, the strongest level since June 2023.
The Shanghai Composite Index, a benchmark of Chinese A-shares, went up 0.69 per cent to close at 2,736.02 points on Thursday, amid a wider rebound of emerging market stocks, with the MSCI index for emerging market stocks rising 1.09 per cent.
Analysts said a major driver of the rebounds was that the US Fed’s rate cut on Wednesday has signalled that the US has entered its first post-COVID monetary easing cycle, which will make financial assets of emerging market economies more attractive than before and give those economies more scope for policy easing.
The US Fed slashed interest rates by 50 basis points on Wednesday and sent its target interest rate range to 4.75 to five per cent amid easing inflation and a weakening labour market, more aggressive than a usual cut of 25 basis points. With the Fed’s focus shifting more to stabilising the labour market, the US central bank is on track for further cuts of about 50 basis points by the end of the year and approximately 100 basis points in 2025, according to the Fed’s projections on Wednesday.
“The Fed’s rate cut cycle may trigger a global wave of interest rate cuts by central banks, leading to a decline in the US dollar index, an appreciation of the renminbi and global capital flowing back to emerging markets,” said chief economist at First Seafront Fund Yang Delong.
