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Fed's moves, strong dollar will bring turbulence, disorder: Xinhua
December 15, 2016 / 8:25 AM / in a year

Fed's moves, strong dollar will bring turbulence, disorder: Xinhua

SHANGHAI (Reuters) - The U.S. Federal Reserve’s decision to raise interest rates will stoke fresh financial turbulence, and global “disorder” is in store as the dollar strengthens from an accelerated pace of rate hikes, China’s state news agency Xinhua said in a commentary.

Signs of China's renminbi (RMB) or yuan and U.S. dollar are seen outside at a foreign exchange store in Shanghai, China, August 14, 2015. REUTERS/Aly Song

The Fed move “will inevitably cause fresh financial turbulence, and worsen the situation of those countries that overly depends on external financing and are insufficiently capable of paying (off) debt, especially those emerging markets,” Xinhua said on Thursday.

On Thursday, China's yuan CNY=CFXS fell to its weakest level in eight-and-half years against a broadly stronger U.S. dollar, after the Fed raised interest rates by 0.25 basis points and projected more interest rate increases than previously expected.

Earlier this month, Chinese Vice Finance Minister Zhu Guangyao said in a media interview that a rate hike would mean heightened capital outflows for all markets, including China.

The Fed move comes shortly after China reported that its foreign reserves at end-November were at the lowest level in nearly six years. The central bank last month sold a net $55.4 billion worth of foreign exchange, the highest since January.

“If the United States accelerates its rate hike pace in the future, a stronger dollar would bring disorder worldwide” as different countries have different interest rates, Xinhua said.

The commentary said it was “advisable” for the U.S. to enhance coordination with other major economies on macro policies, and prudently handle the pace of rate hikes.

Xinhua commentary added that it was “questionable whether the U.S. economy itself has the capability to sustain the possible fast-pace rate hikes indicated by the Fed”.

Reporting by John Ruwitch and Yawen Chen; Editing by Richard Borsuk

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