Jason Lee | Reuters
In response to concerns about the new
The Fed’s loosening of monetary policy will likely accelerate similar moves by the People’s Bank of China, said Zhao Bowen, research director at
“The bottom line is opened more,” he said, according to a CNBC translation of his Mandarin-language remarks. But he noted increased fiscal spending is what China will really need to support economic growth. According to his calculations, GDP growth in the second and third quarter must reach at least 7.5% in order for the country to achieve its implied goal of roughly 5.5% for 2020.
That would go a long way toward helping the Chinese government along with its years-long efforts to boost use of the yuan in global financial markets. Also known as the
Boost to yuan-denominated assets
“So this shows confidence in China,” he said, adding that capital is flowing into the country.
International investors will likely also be more attracted to the relatively higher yields of Chinese yuan-denominated assets if current trends in financial markets and monetary policy persist.
U.S. Treasury yields fell after the Fed rate cut, with the benchmark 10-year yield hitting a record low of 0.906%. The Chinese equivalent traded near 2.71% on Tuesday. The roughly 180 basis point spread, or
Given the Fed’s rate cut, which some criticize as too hasty, the internationalization of the yuan is being “pushed forward,” Zhao said.
As for stocks, the Shanghai Composite gained 0.6% on Wednesday, versus the S&P 500′s volatile 2.8% drop overnight. While the mainland Chinese A-
“Relative to overseas markets, domestic assets have begun to have some properties of safe-haven assets,” Cao said, according to a CNBC translation of his Chinese-language statement. “If U.S.
Calls for more coordination
“Because of this situation, the whole world needs to strengthen monetary policy coordination,”
That includes exchange rates, he said.
For now, the situation at home is still key for each country, especially
“I don’t think they have the bandwidth to think about more than stability,” said James Early, CEO of investment research firm Stansberry China.
“I think the (PBOC) sees (the Fed cut) as a negative because it signals meaningful concern from the world’s largest economy,” he said. “They couldn’t even wait two weeks. The information that was communicated was fear and the PBOC has to digest this.”
The Chinese central bank did not immediately respond to CNBC’s request for comment.
On Tuesday, China’s central bank held a meeting with other major financial regulators and institutions in the country to discuss recently announced support measures, and lowering financing costs amid the virus’ impact to the economy. It was