SHANGHAI (Reuters) - There is little to worry about the Federal Reserve’s impact on China’s yuan as the exchange rate will be determined by economic fundamentals in the long term, state media reported, barely a day after the Fed’s rate hike and policy outlook pummeled the yuan to 8-1/2-year lows.
The Communist Party’s official paper, the People’s Daily, said in an editorial on Friday that there was “no need to worry too much” over whether the rate hikes would put further depreciation pressure on the yuan and increase capital outflows.
“The days of ‘when the United States sneezes, the whole world is cold’ have drifted away, liquidity in today’s global markets is no longer all in US dollars,” the newspaper said.
“The supply of dollars will be tightened on the market but everyone has many choices such as the relatively loose euro to deal with the dollar tightening in order to ease the rate hike’s impact on the stability of the financial system,” it said.
China’s yuan CNY=CNFX fell to its weakest level in more than eight years against a broadly stronger U.S. dollar on Thursday in the wake of the policy decision by the Fed, which also signaled a faster pace of rate hikes.
Analysts have predicted that the yuan could be set for further falls as authorities have struggled to defend the currency against a relentlessly rising dollar amid heavy capital outflows.
The newspaper said that the international community had grown more optimistic about China’s growth prospects after recent strong economic data.
“In the short term devaluation pressure on the yuan does exist, but in the long run, economic fundamentals decide the direction of the yuan exchange rate,” it said.
Reporting by Brenda Goh; Editing by Shri Navaratnam