U.S. interest rate decision affects entire world
The U.S. Federal Reserve Board is welcome to step up communication with China and financial markets on its interest rate decisions, Zhu Guangyao, China's vice finance minister, said on Thursday.
Policy communication with the Fed is very important, as its interest rate policy will have an impact on both the U.S. and the global economy, Vice Finance Minister Zhu Guangyao said at a forum held in Beijing prior to the opening of the annual U.S.-China Strategic and Economic Dialogue.
That meeting is scheduled to be held on Monday and Tuesday in Beijing.
Zhu said officials at the forum will discuss macroeconomic environments and policies, the opening-up of trade and investment as well as financial stability.
Experts said that although each central bank makes its monetary decisions based on what is best for its own economy, the world is now interlinked.
"China is the largest trading partner of the U.S. in 2015, and a Fed decision to hike interest rates will affect China, which will in turn affect the U.S. economy," said Liu Xuezhi, a senior analyst at Bank of Communications. Liu noted bilateral communication over policies is required.
"If the Fed's interest hikes become too aggressive, or too frequent, there may be turbulence in global financial markets," Liu told the Global Times on Thursday, adding that a hike could cause money to flow from emerging countries, including China, to the U.S.
A hike by the Fed will likely strengthen the dollar and depress the yuan, experts noted.
The yuan ended May 1.6 percent lower, the biggest monthly drop since August 2015 when the People's Bank of China, the central bank, adjusted the value of the currency.
The Fed lifted rates in December 2015 for the first time in nearly a decade and the yuan weakened against the dollar by 1.5 percent that month, according to a Reuters report on Tuesday.
However, Liu said that China will be affected to a lesser degree, due to its relatively less open financial markets, compared with emerging countries in Southeast Asia and Latin America.
"The China factor will have an increasing influence in the Fed's interest decisions," Liu said.
