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Xinyi Wu

Following the rate increase by the US Federal Reserve, some analysts argue Beijing may still push ahead with rate cuts this year to shore up flagging domestic growth, though a rate increase by the US typically limits room for monetary easing by China’s central bank.
The Fed raised interest rates for the first time since 2023 on Wednesday, bringing the benchmark target range up 0.25 percentage points to between 3.75 and 4 per cent.
The Federal Reserve’s move has not “significantly” narrowed China’s room for easing, said Shao Yu, chief economist with the Sci-tech Innovation Centre at Fudan University’s School of Management, though Chinese policymakers may enter a brief period of cautious observation.
“China is currently one of the few economies globally whose economic cycle is moving in the opposite direction to that of the US dollar, which allows us to be more proactive in our monetary policy,” said Shao, who expected Beijing to cut the reserve requirement ratio and interest rates this year to support the economy.
The Fed’s rate increase comes amid persistent inflation in the United States, with another increase possible later this year. By comparison, China continues to grapple with weak domestic demand.
China’s economy has been slowing since the second quarter, when it grew just 4.3 per cent. With sluggish consumption and a deepening investment slump, markets are largely expecting additional policy support to help hit Beijing’s full-year growth target of around 4.5 to 5 per cent.
Lynn Song, chief economist for Greater China at ING, similarly noted that there was still a “solid case” for the People’s Bank of China (PBOC) to cut rates in the coming months.
“Given the strength of the yuan this year, the Fed rate increase is unlikely to be a major factor in the PBOC’s rate decision,” Song said, adding that he expects the yuan to continue appreciating, though at a slower pace compared with so far this year.
“The wider yield spread has not stopped yuan appreciation so far, but it may be a factor that is increasingly worth monitoring moving forward,” Song said.

The PBOC set the yuan’s midpoint rate – also known as the daily fixing rate – at 6.7580 against the dollar on Thursday, the strongest level since February 2023.
While a Fed rate increase typically triggered capital outflows from emerging markets towards higher-yielding US assets, Shao expected any downward pressure on the yuan to remain limited, supported by China’s strong export performance.
Additionally, growing concern over Washington’s ability to service its ballooning US$40 trillion debt amid higher interest rates could prompt a reallocation into non-dollar assets, including the yuan, further insulating the currency against depreciation, Shao said.
Foreign holdings of US Treasury debt fell for a second consecutive month in July, with Japan and China – two of the three largest creditors – trimming their positions, according to the latest data released on Wednesday.
However, not all observers agree that rate cuts from China’s central bank are on the horizon.
Alicia Garcia-Herrero, chief Asia-Pacific economist at French investment bank Natixis, did not expect any monetary easing from Beijing this year, citing the wide interest rate differential with the US.
Instead, she expected authorities to focus on local-level fiscal support, such as expanding local government special bond issuance for infrastructure projects in sectors including data centres and grid upgrading to arrest the decline in fixed-asset investment.
China’s top economic planner, the National Development and Reform Commission, has held a series of meetings in the past month calling for the acceleration of major construction projects and disbursement of fiscal funds to boost investment.
Nevertheless, Garcia-Herrero expected the yuan to remain stable, noting that significant dollar reserves parked in Hong Kong would remove some of the pressure from Chinese banks continuing to move funds into short-term US money market paper for higher yields.


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Analysts weigh whether Beijing is set to push ahead with a rate cut to bolster China’s economy despite the US Fed raising interest rates


Analysts weigh whether Beijing is set to push ahead with a rate cut to bolster China’s economy despite the US Fed raising interest rates.


After the US Fed’s rate increase, will China still move ahead with monetary easing?

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Analysts weigh whether Beijing is set to push ahead with a rate cut to bolster China’s economy despite the US Fed raising interest rates

Analysts weigh whether Beijing is set to push ahead with a rate cut to bolster China’s economy despite the US Fed raising interest rates