One implication of the US Fed’s decision to raise interest rates is that its concerns about China have receded. Certainly, the financial market turmoil that spilled over from China to the rest of the world a few months ago has abated. The economic news has generally brightened too. Data released over the past month show growth picking up across a spread of indicators covering industry, investment, retail spending and foreign trade. The impact of both fiscal and monetary policy loosening is increasingly evident as well. Signals from the People’s Bank that it will manage the renminbi against a basket rather than the dollar have triggered concerns of devaluation and a deflationary shock for the rest of the world. In practice though, the PBOC’s behaviour over recent months suggests it will aim to keep the renminbi’s value broadly stable.
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