Global market turmoil may weigh on Fed lift-off move
China cut rates today, amid a global market sell-off that may weigh on the Fed's rate-rise decision
In a sign of deeper economic troubles, the People's Bank of China (PBoC) today cut both the one-year lending and deposit rates by 25 basis points (bp) to 4.6% and 1.75%, respectively. The move is an attempt to limit capital outflows after the renminbi devaluation and to support growth. The PBoC also cut the reserve requirement ratio by 50 bp to 18.0% and lifted the ceiling on fixed rate deposits over one year, in a further step towards rate liberalisation. European equities are rebounding strongly after the news. Earlier, the Shanghai Composite index dropped another 7.6%, following an 8.4% fall yesterday. The index is down a cumulative 23.5% over the past four sessions. The turmoil originates from fears of a sharp Chinese slowdown and scepticism about Beijing's ability to contain it. Uncertainty is raising the stakes for the US Federal Reserve (Fed) to hike rates at its September meeting. More clarity could come following the Kansas City' Fed's Jackson Hole symposium.
Our judgement
Market volatility is reducing the chance of a September rate hike by the Fed though the latest evidence on wage and inflation pressures should provide a better understanding of the central bank's next moves.
See INTERNATIONAL: Commodities rout will fuel EM concerns - August 4, 2015.