On September 17 local time, the minutes of the Federal Open Market Committee (FOMC) monetary policy meeting of the Federal Reserve showed that the Federal Reserve decided to cut the target range for the federal funds rate by 25 basis points to between 4.00% and 4.25%. This is the first interest rate cut by the Federal Reserve since December 2024.
The Federal Reserve's interest rate cut was accompanied by a weakening of the US dollar index and an appreciation of the RMB.
The RMB has entered an appreciation channel
Since late August, the RMB exchange rate has experienced a wave of appreciation. The central parity rate of the RMB against the US dollar has appreciated by around 7.10, and the offshore US dollar against the RMB has appreciated to around 7.12. On September 17th, the offshore RMB broke through the 7.10 mark against the US dollar in the morning.
For today's textile enterprises, the price of goods is a problem, but sales volume is an even greater one. One of the important issues affecting sales volume is the poor performance of foreign trade. One of the root causes of the poor performance of foreign trade is that the high-interest US dollar has siphoned off a large amount of global liquidity, resulting in too little hot money in the market and suppressing the enthusiasm for investment and consumption After all, depositing money in a bank can offer a risk-free return of over 4%, which makes people less enthusiastic about investing. After the Federal Reserve cuts interest rates, it will release more hot money to the market, and the order volume of textile enterprises may gradually show signs of recovery.
In addition, after the Federal Reserve cuts interest rates, it will also open up channels for other countries and regions to cut interest rates. For instance, Hong Kong also announced on the 18th that it would cut interest rates by 25 basis points, which will effectively reduce the operating costs of enterprises.
Some people in the textile industry are also worried that the interest rate cut of the US dollar and the appreciation of the RMB might lead to a reduction in profits. If we look at it on paper, this is indeed the case. However, when we take a closer look, the situation is not so.
Firstly, the export price of Chinese textiles has now reached a level that was unimaginable in the past. This low price was achieved through internal competition, and other countries simply cannot compete with it. With the appreciation of the RMB, everyone's costs have increased, and the final price negotiated will not change much. Secondly, although the RMB will appreciate, other non-US dollar currencies will also appreciate, and the extent of appreciation may even be greater than that of the RMB. Therefore, for buyers, the price of the purchase does not necessarily increase.
Overall, the Fed's interest rate cut is more beneficial than detrimental to the market. The impact may not be immediate, but it will be subtle and gradual.
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What benefits does the Federal Reserve's interest rate cut bring to the textile industry?
