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Enoch Yiu

Bankers and economists have mixed views over whether the US Federal Reserve will raise interest rates this week but most believe China will cut rates and devalue the yuan further this year.
CLSA equity strategist Christopher Wood yesterday said he does not expect the US to increase interest rates at the Fed meeting this week as he does not believe US economic conditions support a rate rise.
The Fed will meet on Wednesday and Thursday to decide on the timing and the quantum of an interest rate increase.
"Fed chairwoman Janet Yellen does not favour raising rates," he said at the annual CLSA investment conference in Hong Kong. "I do not think the US will increase the interest rate this Thursday or this year."
Wood pointed out that the consumption and inflation figures in the US are not good enough to support a rate rise as the US quantitative easing programme since 2008 has only propped up asset prices rather than the economy.
But Wood said he expects more interest rate cuts in China and the yuan to devalue a total of 5 per cent this year as the currency becomes more market-driven to fit the criteria for its admission into the International Monetary Fund's exclusive club of reserve currencies.
Simon Cox, investment strategist with BNY Mellon Investment Management, said there is no urgent need for the Federal Reserve to raise interest rates this week given the recent drop in unemployment rate does not paint a picture of a robust recovery in the US labour market. A more feasible time for a rate increase might be December, he said.
Echoing Cox's views, HSBC's US chief economist Kevin Logan said he believes the Fed will start raising rates in December.
"A surprise hike this week, therefore, would merely bring this forward by three months," Logan said. "Investors in the region are presumably already positioned defensively."
Heng Koon-how, a foreign exchange strategist at Credit Suisse private banking, however, said he believes the rate increase may indeed come this week.
"On balance, we continue to expect the Fed to start policy normalisation on September 17. Although we admit this will be a rather close call. The strong domestic economy in the US, coupled with decent recovery in the US job market, supports this view," Heng said.
"This is especially so when the August unemployment rate dropped from 5.3 per cent to 5.1 per cent, as [the labour] participation rate held steady."
Heng said he believed the US Fed will raise the interest rate by 25 basis points to begin with, followed by additional increases every quarter to 1 per cent by September 2016.
Heng added that China will have more interest rate cuts this year and the yuan will devalue about 5.6 per cent from 6.2 before the shock devaluation on August 11, and devalue to 6.55 next year from about 6.4 at present.


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Fed chair Janet Yellen will oversee meetings to decide the timing and size of rate rises. Photo: Reuters

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Fed decision this week 'close call' but experts see further Chinese rate cuts and yuan devaluation


New | Fed interest rate timing still unclear but most experts tip further China rate cuts and devaluation of yuan

Fed decision this week 'close call' but experts see further Chinese rate cuts and yuan devaluation