US Interest Rate Hikes Result in Risks in Emerging Markets | News

US monetary tightening has led to more social and economic risks, particularly for developing and emerging economies, said Khaled El Shafei, an economist and professor at Cairo University’s Faculty of Commerce.


US Federal Reserve makes a mistake with too restrictive monetary policy

In response to recent sharp hikes in interest rates by the Federal Reserve (Fed), central banks in both developed and developing countries are “drastically raising interest rates, which in some countries have reached double the Fed rate hike, as they try to manage the cost-of-living crisis ‘ said the Egyptian economist.

The Fed has raised interest rates three times so far this year, by 75 basis points, as the United States tries to curb inflation. In the wake of the Ukraine conflict and the supply chain issue, food and fuel prices have skyrocketed, placing an unprecedented burden on developing countries in fighting inflation and maintaining their dollar reserves.

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Shafei expected the Fed to continue raising interest rates, causing more families around the world to suffer the effects of inflation and the difficulty of meeting their daily needs.

“The problem is that the US dollar is the world’s base currency and countries are now suffering from a shortage of the American currency and are increasing its value against their local currencies,” he said, adding that many countries are taking steps to improve to mitigate the impact of the appreciation of the dollar.

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The Fed’s decisions have had a negative impact on all countries in the world, especially developing countries, as the Fed’s rate hike often triggers capital outflows from these countries. The international economy is only a few steps away from stagflation due to the Ukraine conflict, energy shortages and rising prices, and the Federal Reserve’s rate hikes are only making the situation worse, Shafei said.

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About $22 billion in investments have left Egypt since March this year, Egypt’s Finance Minister Mohamed Maait said last month.

“Egypt is now struggling to make new plans to deal with such a crisis,” Shafei said, referring to the central bank’s recent rate setting to attract investment in the country, whose economy is struggling with the impact of COVID. 19 and other disorders.

Rising interest rates mean an increase in production costs in developing countries, forcing investors to borrow at higher costs, which in turn will further push up commodity prices, the expert added.