In an expected move, the US Federal Reserve on Wednesday raised the key interest rate by half a percentage point to offset the highest inflation rates recorded by the United States in four decades, and in the largest increase in 22 years, to increase questions about the consequences of the decision on the lands of the region?
Emirati economist Mohammed Al Muhairi says the aim of the decision is to confront and reduce inflation, stressing that commodity prices will fall gradually in some countries.
He added on the “Al-Hurra” website that “financial liquidity will go to deposits” and that the countries of the region will see a “mass unwillingness to invest”, noting that the movement of gold through this decision will be affected. well, or growth or decline.
Al Muhairi praised the US Federal Reserve’s decision, emphasizing that if it had not been taken, the world would have witnessed an “economic bubble”, leading to a major global financial crisis, as had previously happened in 2008.
On the other hand, Egyptian economic expert Abd al-Nabi Abd al-Muttalib said the US decision would lead to an increase in the cost of raising funds for production, industry and investment, leading to an increase in the prices will cause. of goods and services in some countries.
He added to Al-Hurra: “I think governments could potentially reduce the potential negative repercussions by providing low-cost financing for major, small and micro-projects.”
He pointed to the possibility that the governments of the region contribute to providing certain elements of production at good prices, as well as to taking economic measures to ensure that there is no chaos in the markets.
Impact of the decision on Egypt
On the impact of the decision on the countries of the region, the Egyptian economic expert says that the central banks will have to provide incentives to ensure that foreign investment in debt instruments does not come out.
He added that countries such as Egypt, Tunisia and Sudan would take these measures urgently.
He continued, “The Central Bank of Egypt, and other central banks in the region will certainly raise interest rates.”
He pointed out that these countries will tend to give more incentives and take difficult measures to prevent the “hot money” from leaving them.
However, the Emirati economic expert disagreed with the previous opinion, emphasizing that “Egypt will not be affected by the US decision.”
The Emirati economic expert indicated in statements to the Al-Hurra website that Egypt had already raised the interest rate a month ago to reach a balance in the Egyptian markets, given that Cairo had taken a proactive step.
He said the Egyptian government had taken this step to ensure that liquidity would not leave the market, and that that liquidity would go to banks, and to slow down the pace of economic growth as well.
And Egypt had earlier raised key interest rates by 100 basis points, or 1 percent, in an extraordinary meeting of the Monetary Policy Committee.
At the end of the second quarter of the current 2021/2022 financial year, the Central Bank of Egypt announced that the country’s external debt had risen to $ 145.529 billion.
Cairo is suffering from the high prices of basic commodities and the repercussions of Russia’s invasion of Ukraine, and it has returned to the International Monetary Fund for financial support.
As for Turkey, it is suffering from the worst economic crisis in two decades, and the Turkish Statistical Agency has revealed that producer prices have risen the most since March 1995, in an early indicator of inflation, according to Bloomberg.
According to Bloomberg, consumer inflation rose to 70% annually over the same period.
The Turkish lira has lost about a tenth of its value against the dollar this year, with the Turkish currency expected to lose more value.
Turkey’s central bank has suspended interest rates for four consecutive months this year, and a meeting to discuss the next interest rate will be held on May 26.
Commenting on the possible consequences of the decision on Turkey, Egyptian economic expert Abdel Nabi Abdel Muttalib said that “Turkey continues to meet interest rate hikes despite the high level of inflation to 70%,” be that this policy “different accounts.”
While the Emirati economist, Mohammed Al-Muhairi, has indicated that the decision will affect industrialized countries, including Turkey, due to its dependence on industry, which always requires bank loans.
Al-Muhairi expected a decline in the pace of industry in Turkey, but on the other hand, he believes that the prices of services “will show a remarkable improvement.”
Following the decision of the US Federal Reserve, the Gulf states took similarly rapid steps.
And the Saudi Central Bank has announced that the rate of repurchase agreements “repo” will be increased by 0.5%, from 1.25 to 1.75%.
The Saudi Central Bank also increased the rate of reverse repurchase agreements by 0.5%, from 0.75 to 1.25%.
The UAE Central Bank has announced a 50 basis point increase in the base interest rate, starting on Thursday.
The UAE Central has decided to keep the rate applicable for short-term lending at the Central Bank by all existing credit facilities at 50 basis points above the base rate.
The Central Bank of Kuwait increased the discount rate by a quarter of a percentage point from May 5, from 1.75% to 2.00%.
The Central Bank of Bahrain has announced a one-week deposit rate increase of 50 basis points to 1.75%.
The Qatar Central Bank has decided to increase the deposit rate by 50 basis points to 1.50% and the lending rate by 25 basis points to 2.75%.
Abdul-Nabi Abdul-Muttalib described the steps taken by the Gulf central banks as “successful”. The Egyptian economic expert said that these banks did this to ensure that the money did not leave the Gulf banking system under the temptation of the US Federal Reserve to raise the interest rate.
The Emirati economic expert attributed the majority of central banks in the Gulf states to take the same step as the US Federal Reserve, to the fact that their economy is directly linked to the dollar.
He continued, “We will not see an active investment movement as it has been in the past, but there will not be an economic recession.”
He stressed that the consequences of the decision would include “borrowers” as a result of the interest rate increase. He explained that if banks had previously lent interest at 3%, then loans after this decision would be at 3.5%, an increase that is “not scary.”
He added, “The interest rate hike will affect mega and mega projects and some emerging factories, but the decision will not affect small projects.”
He added, “Those who come to borrow for the long term will suffer as a result of this decision, especially those loans with variable interest rates, but lenders with fixed interest rates will not be affected by the decision.”
He pointed to the possibility that some new emerging factories would temporarily halt their production, to circumvent the possible consequences of raising interest rates.