WALL – According to an analysis published by the British Reuters news agency today, developing countries are in the position of the most vulnerable economies under the long-term high interest rate policy that the United States (US) Central Bank (FED) Chairman Jerome Powell signaled last week.
In the news, it was reminded that the New York-based financial analysis company S&P Global classified the lending risk of financial institutions in Turkey, South Africa and Argentina as high or very high.
Eswar Prasad, Professor of Economics at Cornell University, said: “Fed’s increasing interest rates and keeping[the rates]high will damage economies on the brink of the border like Sri Lanka and Turkey.”
“In a two to three year time frame, things will start to get difficult… If it is certain that the Fed will keep interest rates high for a long time, the pressures can be felt immediately,” Prasad said.
In his August 26 speech, Powell said the Fed would raise rates as necessary to restrain growth and keep rates “for a little while longer” to curb inflation, which is now more than three times the bank’s 2 percent target.
Inflation in the USA is at its highest level in the last 40 years and is thought to have not peaked yet.
S&P Global; He says the credit risk of financial institutions is high or extremely high in many countries, including China, India and Indonesia.
Professor Peter Blair Henry of New York University’s Stern School of Business commented that “it’s a crisis time for the Fed” and added:
“The credibility of the last 40 years is at stake, so they will reduce inflation regardless of whether it’s done damage in developing countries.”
Many developing countries borrow in dollars.
FED’s increase in interest rates raises borrowing costs. In addition, it increases the risk premium of developing countries, making it even more difficult for them to borrow.
‘INFLATIONIST WILL INCREASE THE PRESSURE’
It is predicted that high interest rates will increase the value of the dollar against emerging economy currencies, increasing import costs and increasing inflationary pressure.
It was stated in the news that countries such as China and India were not affected by this pressure, but smaller countries such as Turkey and Argentina were clearly victims of it.
IMF chief economist Pierre-Olivier Gourinchas said, “In our border and low-income economies, real investment returns are already at or near problematic levels,” he said.
“This is the case with around 60 percent of low-income countries and 20 developing and borderline countries. They still have access to markets, but borrowing conditions have definitely gotten worse.” (NEWS CENTER)