Aggressive Fed rate hikes could be ‘catastrophic’ for developing countries
——Interview with Onunayiju, an expert on international relations in Nigeria
Nigerian international relations expert Charles Onunaiju said in an exclusive interview with a reporter from Xinhua News Agency in Abuja a few days ago that the Federal Reserve has raised interest rates consecutively this year, making the prospects for world economic recovery face greater uncertainty and may cause serious reliance on the US dollar. “Catastrophic” impact on developing countries.
Since March this year, the Federal Reserve has raised interest rates by 375 basis points in total, and at the beginning of this month, it raised interest rates by 75 basis points for the fourth time in a row. The Fed’s aggressive interest rate hikes pushed the dollar exchange rate higher.
Onunayju said that the current world economic growth prospects are facing multiple shocks. The United States has not shown its due responsibility as a major country, but instead used the hegemony of the dollar to export inflation to the outside world. Its intensive interest rate hikes have caused turmoil in the international market, while the economic structure is relatively fragile. , Developing countries that rely heavily on US dollar loans and foreign trade may bear a more severe impact.
“In particular, the currency exchange rates of developing countries will be under greater pressure, and the pace of attracting foreign capital may slow down, which will trigger a chain reaction and lead to other economic problems.” He said.
Since the beginning of this year, the Central Bank of Nigeria has raised interest rates by 500 basis points to 16.5%. The yield on one-year bonds recently issued hit a new high since February 2019, further increasing the cost of government debt repayment. Meanwhile, the Nigerian currency, the naira, continued to depreciate.
Onunayju believes that the Fed’s interest rate hike will also lead to rising financing costs for developing countries, increasing financing difficulties, and thus affecting infrastructure investment to ensure economic growth and people’s livelihood needs. At present, the Nigerian economy is experiencing problems such as high inflation, a shortage of US dollars in the market, and the rapid depreciation of the national currency, which are largely due to external input factors.
“For developing countries such as Nigeria, the level of foreign investment has fallen, and it may be even lower, and the situation will be worse.” He said that developing countries may also face pressures such as reduced factory capacity, job losses and rising debt pressure. .
He believes that when the United States launches relevant decisions, it should fully consider the possible chain reactions, especially the impact on developing countries including African countries. At the same time, developing countries should promote more complete and effective bilateral and multilateral financial mechanisms and trade arrangements, and strive to reduce the impact of the Fed’s monetary policy on themselves.
(Story by Guo Jun, Xinhua News Agency, Abuja, November 27, participating reporter: Li Zhuoqun)
“Guangming Daily” (page 16, November 29, 2022)