Illustration: Luo Xuan/GT

The US Federal Reserve has scaled back its pace of interest rate hikes with its announcement on Wednesday that it will keep interest rates unchanged for at least another month. It may also save the US central bank from being accused of destabilizing the global economy.

With its rate increase in December, the Fed distanced itself from other central banks, most of which have been moving in the opposite direction, and if it had chosen to raise rates again this time, as some had feared, the Fed would have been even more out of step with its global peers. The move might also have been seen as adding to the threat of global recession.

Fortunately, the Fed opted to hold fire with its more dovish outlook, despite the recent indicators for the US economy that have pointed to solid job gains and rising core inflation. At the just-concluded March meeting, Fed officials signaled that two more rate increases would happen this year instead of the previously planned four, an undoubted boon for the fragile global markets. It is also good news for China, given the acute volatility seen last year in both the country's stock markets and its currency.

The Fed's announcement appears to have been potent in mollifying the overall market sentiment. The three major US stock indexes - the Dow Jones Industrial Average, the NASDAQ Composite, and the S&P 500 - all climbed swiftly after the announcement of the Fed's latest assessment and closed higher on Wednesday. The three indexes all logged two straight trading days of gains on Thursday and Friday.

Buoyed by the news, China's benchmark Shanghai Composite Index also finished up on Thursday, rising for the fifth trading day in a row. The index continued its recovery on Friday. Additionally, the Chinese currency has strengthened against the US dollar after the Fed announced its decision on Wednesday.

It appears that the Fed's move has helped to lift some of the gloom over the prospects for emerging market economies that have been plagued by various domestic problems.

In China's case, ineffective oversight is one of the main factors to blame for wild swings and abnormal moves in the country's financial markets, but the effects of the Fed's decisions should not be underestimated. The US rate hike last year was transmitted through to China's financial system in that it spurred capital flows out of the country, compounding the difficulties being faced by China's central bank in balancing the nation's longer-term reformist drives and the short-term need to maintain economic stability. 

Responding in part to the drop in the country's foreign exchange reserves, which was considered to have resulted in less liquidity available in the market, the People's Bank of China (PBC), the central bank, announced a reserve requirement ratio cut in February. In doing so, the PBC was not deviating from an overall loosening monetary stance globally, but the Chinese central bank has refrained from any substantial stimulus, unlike two of its major global counterparts.

The Bank of Japan slashed rates into negative territory in January, a move followed by the European Central Bank, which earlier this month cut rates deeper into negative territory and announced an expansion in its bond-buying program as well.

With the Fed having decided not to run the risk of disturbing the fragile global economy - a scenario that would harm the US economy as well - China will surely be given more leeway in continuing to pursue the wide-ranging reforms of its economy. 

China has set a good example in persevering with its economic structural reforms. These aim to provide longer-term gains after going through some short-term pain, but it's worth pointing out that the price to be paid in the country's efforts to rebalance its economy must be kept within an affordable range.

This calls not only for more sophisticated efforts from China's policymakers in steering the economy toward being more market-oriented and driven by innovation, but also for future moves by the PBC and its major global peers in a more coordinated fashion.

After all, few would relish going out on a limb, and even the Fed, the most powerful of the world's central banks, wouldn't want to stray too far.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn