New | US rate hike to pressure China’s capital reserves and currency
Capital outflows will accelerate and yuan depreciation pressure will increase, analysts say
As the US Federal Open Market Committee prepares to announce its first interest rate hike in almost a decade, analysts say markets have priced it in but warn that China’s currency will feel the pressure and capital outflows could accelerate.
The US federal funds rate has occupied the growth-friendly target range of zero to 0.25 per cent since mid-2011. Since that time, domestic unemployment has almost halved to 5 per cent, while economic growth has averaged around 2 per cent.
With full employment nearing, the FOMC is expected to increase the rate by 25 basis points on December 16 in an effort to slow economic growth to a pace consistent with the reduced potential growth rate.
Observers agree rate adjustments will continue into 2016. HSBC predicts a cautious approach with two more rate increases next year.
“Moving too fast could increase the chance of a recession,” said Kevin Logan, HSBC’s chief US economist. “The current low level of nominal interest rates means the FOMC would have little room to counter a recession if one occurred.”
