According to the analysis released by Reuters today, the Chairman of the US Federal Reserve (Fed) Jerome PowellIt is predicted that the long-term high interest policy decision, signaled by , will hit the Turkish economy and further increase the inflationary pressure. Turkey is shown as one of the economies that will be most affected by the Fed’s high interest rate policy.
According to experts, this price is worth paying despite the losses such as job losses. According to the analysis, which reminds that central banks are reliable institutions based on their ability to fight inflation, losing the war against inflation may shake the foundations of modern monetary policy.
President of Turkey Tayyip Erdogan‘of “new economy model” In the low interest and high exchange rate policy, which he defined as a low interest rate, it was aimed to increase exports, thereby reducing exchange rates and inflation with the abundance of foreign currency to be created by giving a current account surplus. But no expectations were met. While investors are struggling to find suitable loans, the inflation burden of the public is getting heavier day by day.
‘He’ll hit hard’
The Fed, which has increased interest rates for these reasons, is expected to continue this step. The “pain” of the interest rate policy is expected to reflect far beyond the national economy and hit especially the developing countries hard.
Professor of Economics from Cornell University in the USA Eswar PrasadAccording to , the Fed’s increase in interest rates will damage economies on the brink of the border, such as Sri Lanka and Turkey. your work in 2-3 years “it’s getting harder” stating Prasad, “If it is certain that the Fed will keep rates high for a long time, pressures can be felt immediately” said.
Why does the Fed’s decision matter?
Many developing countries borrow in dollars. The Fed’s hike in interest rates increases borrowing costs. In addition, it increases the risk premium of developing countries, making it even more difficult for them to borrow.
High interest rates are expected to increase the value of the dollar against emerging economy currencies, increasing import costs and increasing inflationary pressure.