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Experts sure any moves by US Fed won't affect nation's policy much

Updated: Jul 30, 2021 By CHEN JIA China Daily Print
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The People's Bank of China in Beijing. [Photo/IC]

Macroeconomic experts in China said on Thursday the US Federal Reserve's latest signal that it may taper $120-billion-a-month purchases of Treasurys and mortgage bonds would not unduly affect the country's current financial condition.

That is because Chinese monetary authorities will likely continue to accord top priority to economic recovery and price stability in the second half of this year, they said.

It is unlikely that China's monetary policy, which focuses on preventing economic slowdown and maintaining financial stability, will be influenced by any possible adjustments to US monetary policy, they said.

On Wednesday, after a two-day meeting of a key Fed committee ended, the US central bank noted the country's economy is reopening at a fast clip, suggesting the twin goals of stable inflation and low unemployment may be attainable in the near future.

The Federal Open Market Committee, therefore, kept key US policy rates unchanged at near zero on Wednesday and said it will maintain the current level of asset purchases for the time being. It also signaled tapering could be a possibility later this year.

Fed Chairman Jerome Powell told a news conference online after the meeting that no decision has been made on the timeline of tapering. But Fed officials expect the US economy to continue moving toward the standard of "substantial further progress".

Powell also said he is concerned the US inflation has increased notably and will likely remain elevated in coming months before moderating. The rapid reopening of the US economy may raise the possibility that inflation could turn out to be higher and more persistent than expected.

"If we saw signs that the path of inflation or longer-term inflation expectations were moving materially and persistently beyond levels consistent with our goal, we'd be prepared to adjust the stance of policy," he said.

Any tapering will depend on incoming data, which will be assessed by the FOMC when it meets again on Sept 21-22 and Nov 2-3.

Spillover effects of any Fed policy change will likely be limited, said Li Chao, chief economist with Zheshang Securities, who once worked with China's central bank, the People's Bank of China. "It is unlikely that any change in Fed stance will influence China's macroeconomic policy in the second half."

Ming Ming, a senior researcher with Citic Securities, said that besides inflation and the emergence of variants of the novel coronavirus, employment growth could be the third factor that might influence the Fed's decision on tapering.

Tapering might start at the beginning of next year, and a rate hike may happen by the end of 2022, Ming said.

He also noted that the Fed has built a buffer mechanism in preparation for the tapering process, referring to two monetary policy measures of standing repurchase agreement facilities-a domestic one for primary dealers and additional banks, and another one for foreign and international monetary authorities.

On Thursday, the People's Bank of China conducted 30 billion yuan ($4.64 billion) worth of seven-day reverse repos with unchanged interest rate at 2.2 percent. The measure will inject liquidity in the interbank system and ensure the current financial conditions would not tighten.

Analysts said the PBOC will maintain sufficient market liquidity in the second half while keeping the market interest rates stable around the policy rates.

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